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The board of Ibstock plc (LON:IBST) has announced that it will pay a dividend on the 30th of May, with investors receiving £0.025 per share. Based on this payment, the dividend yield will be 2.4%, which is lower than the average for the industry.
See our latest analysis for Ibstock
Ibstock's Future Dividend Projections Appear Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 26%, which is in a comfortable range for us.
Ibstock's Dividend Has Lacked Consistency
Ibstock has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of £0.044 in 2016 to the most recent total annual payment of £0.04. Doing the maths, this is a decline of about 1.1% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Limited Growth Potential
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. Ibstock's earnings per share has shrunk at 25% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
We're Not Big Fans Of Ibstock's Dividend
In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Ibstock has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. 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.