Euroseas (NASDAQ:ESEA) Has Announced A Dividend Of $0.50

The board of Euroseas Ltd. (NASDAQ:ESEA) has announced that it will pay a dividend on the 16th of June, with investors receiving $0.50 per share. This payment means the dividend yield will be 9.9%, which is below the average for the industry.

View our latest analysis for Euroseas

Euroseas' Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Euroseas is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to fall by 44.6%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 21%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $6.40 in 2013, and the most recent fiscal year payment was $2.00. Dividend payments have fallen sharply, down 69% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Euroseas has impressed us by growing EPS at 81% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Euroseas' 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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Case in point: We've spotted 4 warning signs for Euroseas (of which 2 are potentially serious!) you should know about. Is Euroseas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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