Kaap Agri (JSE:KAL) Has Announced That It Will Be Increasing Its Dividend To ZAR1.22

The board of Kaap Agri Limited (JSE:KAL) has announced that it will be paying its dividend of ZAR1.22 on the 20th of February, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.0%, which shareholders will be pleased with.

View our latest analysis for Kaap Agri

Kaap Agri's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Kaap Agri 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 could expand by 10.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kaap Agri's Dividend Has Lacked Consistency

Looking back, Kaap Agri's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2018, the annual payment back then was ZAR0.826, compared to the most recent full-year payment of ZAR1.68. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Kaap Agri has been growing its earnings per share at 10% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Kaap Agri will make a great income stock. While Kaap Agri is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 2 warning signs for Kaap Agri you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.