2 Cheap Cars Group (NZSE:2CC) Has Announced That Its Dividend Will Be Reduced To NZ$0.0252

2 Cheap Cars Group Limited (NZSE:2CC) is reducing its dividend from last year's comparable payment to NZ$0.0252 on the 19th of June. However, the dividend yield of 7.8% still remains in a typical range for the industry.

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Estimates Indicate 2 Cheap Cars Group's Could Struggle to Maintain Dividend Payments In The Future

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend was quite easily covered by 2 Cheap Cars Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

If the company can't turn things around, EPS could fall by 23.7% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 103%, which is definitely a bit high to be sustainable going forward.

Check out our latest analysis for 2 Cheap Cars Group

2 Cheap Cars Group's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 4 years was NZ$0.032 in 2021, and the most recent fiscal year payment was NZ$0.0612. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. 2 Cheap Cars Group's EPS has fallen by approximately 24% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On 2 Cheap Cars Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for 2 Cheap Cars Group that investors should take into consideration. 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.