Ennis, Inc. (NYSE:EBF) has announced that it will pay a dividend of $0.25 per share on the 5th of May. The dividend yield will be 5.1% based on this payment which is still above the industry average.

Ennis' Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Ennis' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Earnings per share could rise by 1.8% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 226%, which probably can't continue without starting to put some pressure on the balance sheet.

View our latest analysis for Ennis

Ennis Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $0.70, compared to the most recent full-year payment of $1.00. This means that it has been growing its distributions at 3.6% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Ennis' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Ennis is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

We Really Like Ennis' Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Now, if you want to look closer, it would be worth checking out our free research on Ennis management tenure, salary, and performance. Is Ennis not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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