The board of Joyce Corporation Ltd (ASX:JYC) has announced that it will pay a dividend of A$0.105 per share on the 4th of April. This payment means that the dividend yield will be 4.8%, which is around the industry average.

See our latest analysis for Joyce

Estimates Indicate Joyce's Could Struggle to Maintain Dividend Payments In The Future

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Joyce's dividend made up quite a large proportion of earnings but only 32% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share could rise by 18.7% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 113% over the next year.

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$0.036 in 2015, and the most recent fiscal year payment was A$0.23. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Joyce 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.

Joyce Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Joyce has grown earnings per share at 19% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Joyce's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Joyce 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.

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.