1 day Ago By Simply Wall St.
The board of ( ) has announced that it will be paying its dividend of £0.49 on the 1st of November, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.
3%, providing a nice boost to shareholder returns. We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Brooks Macdonald Group's profits didn't cover the dividend, but the company was generating enough cash instead.
Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor. Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from £0.23 total annually to £0.
78. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Although it's important to note that Brooks Macdonald Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. For instance, we've picked out that investors should take into consideration.
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