Gamma Communications (LON:GAMA) Is Increasing Its Dividend To £0.114

The board of Gamma Communications plc (LON:GAMA) has announced that it will be paying its dividend of £0.114 on the 20th of June, an increased payment from last year's comparable dividend. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Gamma Communications

Gamma Communications' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Gamma Communications' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 57.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.

Gamma Communications Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the annual payment back then was £0.0395, compared to the most recent full-year payment of £0.171. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Gamma Communications has impressed us by growing EPS at 13% per year over the past five years. Gamma Communications definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Gamma Communications Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Gamma Communications is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Gamma Communications analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Gamma Communications not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.