In This Article:
Caledonia Investments Plc (LON:CLDN) will increase its dividend from last year's comparable payment on the 7th of August to £0.5391. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.
Caledonia Investments' Payment Could Potentially Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Caledonia Investments is earning enough to cover the payment, but then it makes up 241% 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.
Unless the company can turn things around, EPS could fall by 4.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 64%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
View our latest analysis for Caledonia Investments
Caledonia Investments 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 an annual total of £0.491 in 2015 to the most recent total annual payment of £0.736. This means that it has been growing its distributions at 4.1% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Caledonia Investments has seen earnings per share falling at 4.7% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Caledonia Investments will make a great income stock. While Caledonia Investments is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. See if management have their own wealth at stake, by checking insider shareholdings in Caledonia Investments stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.