Yahoo Finance Grainger (LON:GRI) Has Announced That It Will Be Increasing Its Dividend To £0.0437
Grainger plc (LON:GRI) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of February to £0.0437. Even though the dividend went up, the yield is still quite low at only 2.4%.
See our latest analysis for Grainger
Grainger's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 192% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 28%. 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. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 35%, which is in a comfortable range for us.
Grainger Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from £0.0195 total annually to £0.0665. This means that it has been growing its distributions at 13% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Grainger's EPS has fallen by approximately 30% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
Our Thoughts On Grainger's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Grainger (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Grainger not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
