Yahoo Finance Halfords Group's (LON:HFD) Upcoming Dividend Will Be Larger Than Last Year's
Halfords Group plc's (LON:HFD) dividend will be increasing to UK£0.06 on 16th of September. This will take the annual payment from 5.7% to 5.7% of the stock price, which is above what most companies in the industry pay.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Halfords Group's stock price has reduced by 40% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Check out our latest analysis for Halfords Group
Halfords Group's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Halfords Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Looking forward, earnings per share is forecast to fall by 34.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 32%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was UK£0.22 in 2012, and the most recent fiscal year payment was UK£0.09. The dividend has shrunk at around 8.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend's Growth Prospects Are Limited
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings have grown at around 4.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Halfords Group could always pay out a higher proportion of earnings to increase shareholder returns.
The company has also been raising capital by issuing stock equal to 10% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On Halfords Group's Dividend
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Halfords Group you should be aware of, and 1 of them can't be ignored. Is Halfords Group 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.
