Gamma Communications (LON:GAMA) Is Paying Out A Larger Dividend Than Last Year

Gamma Communications plc's (LON:GAMA) dividend will be increasing from last year's payment of the same period to £0.10 on 22nd of June. Even though the dividend went up, the yield is still quite low at only 1.4%.

Check out our latest analysis for Gamma Communications

Gamma Communications' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Gamma Communications was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 29.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% 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 8 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of £0.0395 in 2015 to the most recent total annual payment of £0.15. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Gamma Communications has impressed us by growing EPS at 16% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Gamma Communications' prospects of growing its dividend payments in the future.

Gamma Communications Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Gamma Communications analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.