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The board of Designer Brands Inc. (NYSE:DBI) has announced that it will pay a dividend of $0.05 per share on the 11th of April. Based on this payment, the dividend yield on the company's stock will be 5.3%, which is an attractive boost to shareholder returns.
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. Designer Brands' stock price has reduced by 32% 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 Designer Brands
Designer Brands' Future Dividend Projections Seem Positive
If the payments aren't sustainable, a high yield for a few years won't matter that much. Despite not generating a profit, Designer Brands is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, so there isn't too much pressure on the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $0.75 in 2015 to the most recent total annual payment of $0.20. The dividend has fallen 73% over that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Company Could Face Some Challenges Growing The Dividend
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Designer Brands has impressed us by growing EPS at 39% per year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.
Designer Brands' Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Designer Brands' payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.