Gowing Bros. Limited (ASX:GOW) will pay a dividend of A$0.03 on the 22nd of April. The dividend yield is 2.6% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Gowing Bros

Gowing Bros' Distributions May Be Difficult To Sustain

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Gowing Bros is unprofitable despite paying a dividend, and it is paying out 1,459% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Over the next year, EPS could expand by 27.5% if recent trends continue. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was A$0.109 in 2014, and the most recent fiscal year payment was A$0.06. The dividend has shrunk at around 5.8% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Gowing Bros has seen EPS rising for the last five years, at 28% per annum. The company hasn't been turning a profit, but it running in the right direction. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

Gowing Bros' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Gowing Bros has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Gowing Bros has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Gowing Bros 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.