SG Fleet Group Limited (ASX:SGF) will increase its dividend on the 15th of September to A$0.0727, which is 6.8% higher than last year's payment from the same period of A$0.0681. This takes the dividend yield to 5.7%, which shareholders will be pleased with.

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. Investors will be pleased to see that SG Fleet Group's stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for SG Fleet Group

SG Fleet Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. At the time of the last dividend payment, SG Fleet Group was paying out a very large proportion of what it was earning and 1,531% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 40.6%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward. historic-dividend

SG Fleet Group's Dividend Has Lacked Consistency

SG Fleet Group has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of A$0.04 in 2014 to the most recent total annual payment of A$0.157. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. 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's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though SG Fleet Group's EPS has declined at around 3.4% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.



SG Fleet Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think SG Fleet Group will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for SG Fleet Group (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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