PlayWay S.A. (WSE:PLW) will increase its dividend on the 6th of July to zł19.22. This makes the dividend yield 6.3%, which is above the industry average.
Check out our latest analysis for PlayWay
PlayWay Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend made up a very large portion of earnings and also represented 90% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.
The next 12 months is set to see EPS grow by 4.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 137%, which is a bit high and could start applying pressure to the balance sheet.
PlayWay Is Still Building Its Track Record
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. The first annual payment during the last 4 years was zł2.38 in 2018, and the most recent fiscal year payment was zł19.22. This implies that the company grew its distributions at a yearly rate of about 69% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Dividend Growth Could Be Constrained
The company's investors will be pleased to have been receiving dividend income for some time. PlayWay has seen EPS rising for the last five years, at 84% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which PlayWay hasn't been doing.
Our Thoughts On PlayWay's Dividend
In summary, while it's always good to see the dividend being raised, we don't think PlayWay's payments are rock solid. Strong earnings growth means PlayWay has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for PlayWay you should be aware of, and 1 of them is potentially serious. 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.
About WSE:PLW
Very undervalued with solid track record.
