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The board of Fletcher King Plc (LON:FLK) has announced that it will be paying its dividend of £0.0225 on the 25th of October, an increased payment from last year's comparable dividend. This takes the annual payment to 4.5% of the current stock price, which is about average for the industry.
See our latest analysis for Fletcher King
Fletcher King's Earnings Easily Cover The Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Fletcher King's dividend made up quite a large proportion of earnings but only 30% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Over the next year, EPS could expand by 2.0% if recent trends continue. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 71% which brings it into quite a comfortable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from £0.015 total annually to £0.0225. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Fletcher King's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Fletcher King's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.
Our Thoughts On Fletcher King's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Fletcher King's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.