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Essentra plc (LON:ESNT) will pay a dividend of £0.0155 on the 3rd of July. However, the dividend yield of 2.9% still remains in a typical range for the industry.
Essentra's Future Dividend Projections Appear Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by Essentra's 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 71.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.
View our latest analysis for Essentra
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 £0.183, compared to the most recent full-year payment of £0.028. Dividend payments have fallen sharply, down 85% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Essentra's EPS has fallen by approximately 23% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Essentra that investors should know about before committing capital to this stock. Is Essentra 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.