The board of Goodwin PLC (LON:GDWN) has announced that it will be paying its dividend of ￡0.665 on the 4th of October, an increased payment from last year's comparable dividend. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Goodwin

Goodwin's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last dividend, Goodwin is earning enough to cover the payment, but then it makes up 103% of 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.

If the trend of the last few years continues, EPS will grow by 7.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 58% by next year, which is in a pretty sustainable range.

Goodwin Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ￡0.423 in 2014, and the most recent fiscal year payment was ￡1.33. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

We Could See Goodwin's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Goodwin has grown earnings per share at 7.1% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Goodwin is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Goodwin that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.