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Bunzl plc (LON:BNZL) will increase its dividend from last year's comparable payment on the 3rd of January to £0.182. The payment will take the dividend yield to 2.2%, which is in line with the average for the industry.
See our latest analysis for Bunzl
Bunzl's Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Bunzl's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 14.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 41%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from £0.282 total annually to £0.636. This means that it has been growing its distributions at 8.5% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Bunzl might have put its house in order since then, but we remain cautious.
Bunzl Could Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Bunzl has seen EPS rising for the last five years, at 8.0% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
In Summary
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Bunzl that you should be aware of before investing. Is Bunzl 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.