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The board of Goodwin PLC (LON:GDWN) has announced that it will be increasing its dividend on the 8th of October to UK£1.02. This will take the annual payment from 3.1% to 3.1% of the stock price, which is above what most companies in the industry pay.
Goodwin's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment was quite easily covered by earnings, but it made up 107% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Over the next year, EPS could expand by 6.5% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 67% by next year, which is in a pretty sustainable range.
Goodwin Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from UK£0.28 in 2011 to the most recent annual payment of UK£1.02. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Goodwin Could Grow Its Dividend
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Goodwin has grown earnings per share at 6.5% 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.
Our Thoughts On Goodwin's Dividend
Overall, we always like to see the dividend being raised, but we don't think Goodwin will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. Taking the debate a bit further, we've identified 1 warning sign for Goodwin that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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.
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