Kaap Agri (JSE:KAL) Will Pay A Larger Dividend Than Last Year At R1.11

The board of Kaap Agri Limited (JSE:KAL) has announced that it will be increasing its dividend on the 14th of February to R1.11. This will take the annual payment from 3.1% to 3.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Kaap Agri

Kaap Agri's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Kaap Agri's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 8.9% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

Kaap Agri's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2017, the first annual payment was R0.83, compared to the most recent full-year payment of R1.51. This means that it has been growing its distributions at 16% per annum over that time. 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 Has Growth Potential

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. Kaap Agri has seen EPS rising for the last five years, at 8.9% per annum. Kaap Agri definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Kaap Agri Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Kaap Agri is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Kaap Agri that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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.

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