Accent Group Limited (ASX:AX1) will increase its dividend from last year's comparable payment on the 28th of September to A$0.055. This will take the annual payment to 8.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Accent Group

Accent Group Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Accent Group's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Earnings per share is forecast to rise by 0.05% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 122%, which probably can't continue without putting some pressure on the balance sheet. historic-dividend

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from A$0.045 total annually to A$0.175. This means that it has been growing its distributions at 15% per annum over that time. Accent Group 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.

Accent Group's Dividend Might Lack Growth

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. Accent Group has seen EPS rising for the last five years, at 14% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Accent Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Accent Group is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Accent Group that investors should know about before committing capital to this stock. Is Accent Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.