Pennon Group (LON:PNN) Has Announced A Dividend Of £0.1469

Pennon Group Plc's (LON:PNN) investors are due to receive a payment of £0.1469 per share on 4th of April. This makes the dividend yield 8.1%, which is above the industry average.

See our latest analysis for Pennon Group

Pennon Group's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Pennon Group's Could Struggle to Maintain Dividend Payments In The Future

Pennon Group's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. Despite not generating a profit, Pennon Group is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Earnings per share is forecast to rise by 199.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

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 £0.455 in 2015 to the most recent total annual payment of £0.45. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Pennon Group's EPS has fallen by approximately 67% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Pennon Group's Dividend Doesn't Look Great

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Pennon Group that investors need to be conscious of moving forward. Is Pennon Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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