Gamma Communications plc (LON:GAMA) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of June to ￡0.114. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Gamma Communications

Gamma Communications' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Gamma Communications' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 57.2%. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Gamma Communications Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 9 years was ￡0.0395 in 2015, and the most recent fiscal year payment was ￡0.171. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Gamma Communications has seen EPS rising for the last five years, at 13% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Gamma Communications' prospects of growing its dividend payments in the future.

Gamma Communications Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 Gamma Communications analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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