GR Engineering Services (ASX:GNG) Has Affirmed Its Dividend Of A$0.09

GR Engineering Services Limited's (ASX:GNG) investors are due to receive a payment of A$0.09 per share on 25th of March. This makes the dividend yield 8.3%, which will augment investor returns quite nicely.

Check out our latest analysis for GR Engineering Services

GR Engineering Services' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS could expand by 31.3% if the company continues along the path it has been on recently. If recent patterns in the dividend continue, the payout ratio in 12 months could be 92% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from A$0.04 total annually to A$0.19. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. GR Engineering Services 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that GR Engineering Services has grown earnings per share at 31% per year over the past five years. Although earnings per share is up nicely GR Engineering Services is paying out 107% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

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. Just as an example, we've come across 2 warning signs for GR Engineering Services you should be aware of, and 1 of them shouldn't be ignored. 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.