eMedia Holdings Limited (JSE:EMH) will increase its dividend on the 20th of June to R0.25. This will take the annual payment to 8.5% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for eMedia Holdings
eMedia Holdings' Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, eMedia Holdings' dividend made up quite a large proportion of earnings but only 50% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Looking forward, earnings per share could rise by 38.8% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.
eMedia Holdings' Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. Since 2019, the dividend has gone from R0.08 to R0.50. This implies that the company grew its distributions at a yearly rate of about 84% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
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 eMedia Holdings has been growing its earnings per share at 39% a year over the past five years. However, eMedia Holdings isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
We Really Like eMedia Holdings' Dividend
Overall, a dividend increase is always good, and we think that eMedia Holdings is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for eMedia Holdings that investors should know about before committing capital to this stock. 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.
About JSE:EMH
eMedia Holdings
An investment holding company, operates in media sector in South Africa.
Excellent balance sheet average dividend payer.
