The board of Circle Property Plc (LON:CRC) has announced that the dividend on 14th of January will be increased to UK£0.035, which will be 40% higher than last year. This will take the dividend yield from 3.2% to 3.7%, providing a nice boost to shareholder returns.
See our latest analysis for Circle Property
Circle Property's Distributions May Be Difficult To Sustain
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. While Circle Property is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Recent, EPS has fallen by 40.8%, so this could continue over the next year. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
Circle Property's Dividend Has Lacked Consistency
It's comforting to see that Circle Property has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from UK£0.024 in 2015 to the most recent annual payment of UK£0.065. This means that it has been growing its distributions at 18% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Dividend Growth Potential Is Shaky
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Circle Property's earnings per share has shrunk at 41% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
Circle Property's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think Circle Property's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
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. Case in point: We've spotted 4 warning signs for Circle Property (of which 2 make us uncomfortable!) you should know about. We have also put together a list of global stocks with a solid dividend.
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.