Ridley Corporation Limited's (ASX:RIC) periodic dividend will be increasing on the 24th of April to A$0.0475, with investors receiving 8.0% more than last year's A$0.044. The payment will take the dividend yield to 3.8%, which is in line with the average for the industry.

Check out our latest analysis for Ridley

Ridley's Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last payment made up 75% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 42.2% over the next year. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was A$0.03, compared to the most recent full-year payment of A$0.095. This means that it has been growing its distributions at 12% per annum over that time. Ridley has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. Ridley has impressed us by growing EPS at 42% per year over the past five years. However, Ridley 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 Ridley's Dividend

Overall, a dividend increase is always good, and we think that Ridley is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Ridley that investors should know about before committing capital to this stock. Is Ridley not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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