The board of Midwich Group plc (LON:MIDW) has announced that it will be paying its dividend of £0.105 on the 16th of June, an increased payment from last year's comparable dividend. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Midwich Group

Midwich Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Midwich Group's was paying out quite a large proportion of earnings and 88% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to rise by 88.4% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 47% which brings it into quite a comfortable range. historic-dividend

Midwich Group's Dividend Has Lacked Consistency

Looking back, Midwich Group's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the annual payment back then was £0.0306, compared to the most recent full-year payment of £0.15. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Midwich Group hasn't seen much change in its earnings per share over the last five years. Midwich Group's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.



Our Thoughts On Midwich Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Midwich Group that you should be aware of before investing. 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.

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