Gamma Communications' (LON:GAMA) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Gamma Communications plc (LON:GAMA) has announced that it will be increasing its dividend by 14% on the 19th of October to £0.057, up from last year's comparable payment of £0.05. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

See our latest analysis for Gamma Communications

Gamma Communications' Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Gamma Communications' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 43.4%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

Gamma Communications Is Still Building Its Track Record

It is great to see that Gamma Communications has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2015, the annual payment back then was £0.0395, compared to the most recent full-year 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Gamma Communications has grown earnings per share at 15% 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.

We Really Like Gamma Communications' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing 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. 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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