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The board of Premier Miton Group plc (LON:PMI) has announced that it will be increasing its dividend on the 11th of February to UK£0.063. This will take the annual payment from 5.5% to 5.5% of the stock price, which is above what most companies in the industry pay.
Premier Miton Group's Earnings Easily Cover the Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 105% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 50%. 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.
EPS is set to grow by 47.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 79%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Premier Miton Group's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from UK£0.05 to UK£0.10. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Premier Miton Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Premier Miton Group Might Find It Hard To Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Premier Miton Group has seen EPS rising for the last five years, at 46% per annum. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
Our Thoughts On Premier Miton Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Premier Miton Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Premier Miton Group is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Premier Miton Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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.