REV Group (NYSE:REVG) Is Paying Out A Dividend Of $0.05

The board of REV Group, Inc. (NYSE:REVG) has announced that it will pay a dividend on the 11th of October, with investors receiving $0.05 per share. The dividend yield is 0.8% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for REV Group

REV Group's Projections Indicate Future Payments May Be Unsustainable

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, REV Group's dividend was only 4.5% of earnings, however it was paying out 416% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to fall by 58.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 170%, which could put the dividend under pressure if earnings don't start to improve.

REV Group's Dividend Has Lacked Consistency

Looking back, REV Group's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The payments haven't really changed that much since 8 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

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. REV Group has impressed us by growing EPS at 79% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about REV Group's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think REV Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for REV 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.