XP Power (LON:XPP) Is Due To Pay A Dividend Of UK£0.18
XP Power Limited (LON:XPP) has announced that it will pay a dividend of UK£0.18 per share on the 14th of July. The dividend yield will be 3.0% based on this payment which is still above the industry average.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. XP Power's stock price has reduced by 36% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
View our latest analysis for XP Power
XP Power's Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. 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.
Over the next year, EPS is forecast to expand by 25.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from UK£0.45 to UK£0.94. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
XP Power May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends 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. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
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 track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for XP Power 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.
