Enero Group Limited (ASX:EGG) has announced that on 11th of April, it will be paying a dividend ofA$0.015, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 3.3%, which is lower than the average for the industry.

View our latest analysis for Enero Group

Estimates Indicate Enero Group's Dividend Coverage Likely To Improve

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Enero Group is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Analysts expect a massive rise in earnings per share in the next year. If the dividend extends its recent trend, estimates say the dividend could reach 2.7%, which we would be comfortable to see continuing.

Enero Group's Dividend Has Lacked Consistency

Enero Group has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. There hasn't been much of a change in the dividend over the last 7 years. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Enero Group's earnings per share has shrunk at 18% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Enero Group's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Enero 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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