Deneb Investments (JSE:DNB) Has Announced That It Will Be Increasing Its Dividend To R0.09

Deneb Investments Limited (JSE:DNB) will increase its dividend on the 20th of June to R0.09, which is 29% higher than last year. This makes the dividend yield 4.0%, which is above the industry average.

View our latest analysis for Deneb Investments

Deneb Investments' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Deneb Investments was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 14.9% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.

Deneb Investments' Dividend Has Lacked Consistency

Looking back, Deneb Investments' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the first annual payment was R0.03, compared to the most recent full-year payment of R0.07. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Deneb Investments has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

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. We are encouraged to see that Deneb Investments has grown earnings per share at 15% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Deneb Investments' prospects of growing its dividend payments in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Deneb Investments will make a great income stock. While Deneb Investments is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Deneb Investments (of which 1 makes us a bit uncomfortable!) you should know about. 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.