My Food Bag Group Limited (NZSE:MFB) has announced that it will pay a dividend of NZ$0.01 per share on the 19th of June. The dividend yield will be 6.7% based on this payment which is still above the industry average.

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Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, My Food Bag Group's earnings easily cover the dividend. 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 7.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for My Food Bag Group

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2021, the dividend has gone from NZ$0.06 total annually to NZ$0.013. Dividend payments have fallen sharply, down 78% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though My Food Bag Group's EPS has declined at around 8.4% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for My Food Bag Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.