G5 Entertainment (STO:G5EN) Is Paying Out A Larger Dividend Than Last Year

G5 Entertainment AB (publ) (STO:G5EN) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of June to SEK8.00. This takes the dividend yield to 4.1%, which shareholders will be pleased with.

View our latest analysis for G5 Entertainment

G5 Entertainment Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, G5 Entertainment's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 5.5% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 124%, which is a bit high and could start applying pressure to the balance sheet.

G5 Entertainment Doesn't Have A Long Payment History

It is great to see that G5 Entertainment has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of SEK0.75 in 2017 to the most recent total annual payment of SEK8.00. This means that it has been growing its distributions at 48% per annum over that time. 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 Is Doubtful

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. It's not great to see that G5 Entertainment's earnings per share has fallen at approximately 9.3% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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.

G5 Entertainment's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think G5 Entertainment's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think G5 Entertainment 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. For example, we've picked out 3 warning signs for G5 Entertainment that investors should know about before committing capital to this stock. 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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