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

Gamma Communications plc's (LON:GAMA) dividend will be increasing from last year's payment of the same period to £0.114 on 20th of June. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

See our latest analysis for Gamma Communications

Gamma Communications' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. 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. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

Gamma Communications Doesn't Have A Long Payment History

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. The annual payment during the last 9 years was £0.0395 in 2015, and the most recent fiscal year payment was £0.171. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

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. Gamma Communications has seen EPS rising for the last five years, at 13% per annum. 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 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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