KMD Brands (NZSE:KMD) Has Announced A Dividend Of NZ$0.03

KMD Brands Limited (NZSE:KMD) will pay a dividend of NZ$0.03 on the 30th of June. Based on this payment, the dividend yield will be 5.6%, which is fairly typical for the industry.

View our latest analysis for KMD Brands

KMD Brands' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before this announcement, KMD Brands was paying out 77% of earnings, but a comparatively small 50% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 61.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 41% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was NZ$0.10, compared to the most recent full-year payment of NZ$0.06. Doing the maths, this is a decline of about 5.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

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. KMD Brands' earnings per share has shrunk at 17% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On KMD Brands' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think KMD Brands is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for KMD Brands that you should be aware of before investing. Is KMD Brands 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.