Flow Traders' (AMS:FLOW) Dividend Will Be Increased To €0.80

Flow Traders Ltd. (AMS:FLOW) will increase its dividend from last year's comparable payment on the 4th of May to €0.80. This will take the dividend yield to an attractive 5.7%, providing a nice boost to shareholder returns.

See our latest analysis for Flow Traders

Flow Traders' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite comfortably covered by Flow Traders' earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 3.8%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

Flow Traders' Dividend Has Lacked Consistency

It's comforting to see that Flow Traders has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from €1.00 total annually to €1.50. This means that it has been growing its distributions at 5.2% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Flow Traders has impressed us by growing EPS at 28% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Flow Traders' payments are rock solid. While Flow Traders is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Flow Traders that investors need to be conscious of moving forward. Is Flow Traders not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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