Saratoga Investment (NYSE:SAR) Is Increasing Its Dividend To $0.70

Saratoga Investment Corp. (NYSE:SAR) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of June to $0.70. This will take the dividend yield to an attractive 10.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for Saratoga Investment

Saratoga Investment's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Saratoga Investment was paying out 118% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Looking forward, earnings per share is forecast to rise by 121.0% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 54% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $4.25 in 2013 to the most recent total annual payment of $2.80. This works out to be a decline of approximately 4.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Saratoga Investment's EPS has declined at around 6.7% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We're Not Big Fans Of Saratoga Investment's Dividend

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Saratoga Investment you should be aware of, and 2 of them don't sit too well with us. Is Saratoga Investment 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.