The board of K&S Corporation Limited (ASX:KSC) has announced that it will pay a dividend on the 3rd of April, with investors receiving A$0.08 per share. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for K&S

K&S' Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, K&S was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

If the trend of the last few years continues, EPS will grow by 23.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 67% 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. The annual payment during the last 10 years was A$0.06 in 2015, and the most recent fiscal year payment was A$0.18. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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. K&S has impressed us by growing EPS at 24% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why K&S is not retaining those earnings to reinvest in growth.

Our Thoughts On K&S' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for K&S 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.