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Dunelm Group plc's (LON:DNLM) periodic dividend will be increasing on the 8th of April to £0.515, with investors receiving 1.0% more than last year's £0.51. This makes the dividend yield 8.1%, which is above the industry average.
See our latest analysis for Dunelm Group
Estimates Indicate Dunelm Group's Could Struggle to Maintain Dividend Payments In The Future
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Dunelm Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Earnings per share is forecast to rise by 12.0% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 101% over the next year.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was £0.20, compared to the most recent full-year payment of £0.785. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
We Could See Dunelm Group's Dividend Growing
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Dunelm Group has been growing its earnings per share at 6.1% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
In Summary
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Dunelm Group that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.