Orchard Funding Group plc (LON: ORCH) will pay a dividend of UK Â£ 0.01 on June 25. This payout means that the dividend yield will be 5.3%, which is close to the industry average.
Check out our latest analysis for Orchard Funding Group
Orchard Funding Group payment has strong revenue coverage
We like to see a good dividend yield, but that only helps us if the payout can continue. Based on the last payment, Orchard Funding Group was earning comfortably enough to cover the dividend. This means that a large portion of its profits are kept to grow the business.
Looking ahead, could drop 6.6% if the company fails to redress the situation in recent years. However, if the dividend continues according to recent trends, we estimate that the payout rate could reach 79%, which means that most of the company’s profits go to shareholders.
Orchard Funding Group dividend lacks consistency
Orchard Funding Group has been paying dividends for some time, but the record is not exceptional. For this reason, we are a little cautious about the consistency of dividends over a full economic cycle. As of 2016, the first annual payment was UK Â£ 0.028, compared to the most recent annual payment of UK Â£ 0.03. This works out to a compound annual growth rate (CAGR) of about 1.3% per year over that time period. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the magnitude of the cut would eliminate most of the growth anyway, making it less attractive as a income investment.
Dividend growth is questionable
With a relatively volatile dividend, it is even more important to see if earnings per share increase. Over the past five years, it appears that Orchard Funding Group’s EPS has declined by around 6.6% per year. If profits continue to fall, the company may have to make the difficult choice of reducing the dividend or even stopping it altogether – the opposite of dividend growth.
Our thoughts on the Orchard Funding Group dividend
In summary, while it is good to see that the dividend has not been reduced, we are a little cautious about the payments of Orchard Funding Group, as there could be problems maintaining them in the future. The company generates a lot of cash, which could hold the dividend for a while, but the track record is not great. We would probably look elsewhere for an income investment.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. However, there are other things for investors to consider when analyzing the performance of stocks. For example, we have chosen 3 warning signs for Orchard Funding Group that investors should be aware of before committing capital to this stock. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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