XP Power (LON:XPP) Has Announced A Dividend Of UK£0.18
XP Power Limited's (LON:XPP) investors are due to receive a payment of UK£0.18 per share on 14th of July. The dividend yield will be 3.0% based on this payment which is still above the industry average.
See our latest analysis for XP Power
XP Power's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, XP Power's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 128% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Looking forward, earnings per share is forecast to rise by 25.6% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 67% which brings it into quite a comfortable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was UK£0.45 in 2012, and the most recent fiscal year payment was UK£0.94. This means that it has been growing its distributions at 7.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. XP Power might have put its house in order since then, but we remain cautious.
Dividend Growth May Be Hard To Achieve
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. However, XP Power's EPS was effectively flat over the past five years, which could stop the company from paying more every year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
XP Power's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for XP Power that investors should take into consideration. 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.
