Gamma Communications (LON:GAMA) Will Pay A Larger Dividend Than Last Year At £0.05

The board of Gamma Communications plc (LON:GAMA) has announced that the dividend on 20th of October will be increased to £0.05, which will be 14% higher than last year's payment of £0.044 which covered the same period. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

Check out our latest analysis for Gamma Communications

Gamma Communications' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Gamma Communications was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 10.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.

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 dividend has gone from an annual total of £0.0395 in 2015 to the most recent total annual payment of £0.132. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. 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

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 impressed us by growing EPS at 23% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

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. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for Gamma Communications for free with public 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.