Zigup's (LON:ZIG) Upcoming Dividend Will Be Larger Than Last Year's

Zigup Plc (LON:ZIG) has announced that it will be increasing its periodic dividend on the 30th of September to £0.176, which will be 0.6% higher than last year's comparable payment amount of £0.175. This will take the dividend yield to an attractive 7.8%, providing a nice boost to shareholder returns.

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Zigup's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. At the time of the last dividend payment, Zigup was paying out a very large proportion of what it was earning and 2,579% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 26.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Zigup

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of £0.10 in 2015 to the most recent total annual payment of £0.264. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Zigup has grown earnings per share at 48% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Zigup hasn't been doing.

Our Thoughts On Zigup's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Zigup's payments are rock solid. While Zigup is earning enough to cover the payments, the cash flows are lacking. We don't think Zigup is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Zigup you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield 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.