The board of Credit Corp Group Limited (ASX:CCP) has announced that it will be increasing its dividend on the 11th of March to AU$0.38. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.

View our latest analysis for Credit Corp Group

Credit Corp Group's Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Credit Corp Group's dividend was only 52% of earnings, however it was paying out 132% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 10.0%. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward. historic-dividend

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was AU$0.20, compared to the most recent full-year payment of AU$0.76. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Credit Corp Group has seen EPS rising for the last five years, at 5.9% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Credit Corp Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Credit Corp Group's payments are rock solid. While Credit Corp Group is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 7 analysts we track are forecasting for Credit Corp Group for free  with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.