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James Latham plc (LON:LTHM) has announced that it will pay a dividend of £0.0795 per share on the 24th of January. This will take the dividend yield to an attractive 6.7%, providing a nice boost to shareholder returns.
See our latest analysis for James Latham
James Latham's Projected Earnings Seem Likely To Cover Future Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, James Latham was paying a whopping 107% as a dividend, but this only made up 33% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Earnings per share is forecast to rise by 2.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.
James Latham Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was £0.114, compared to the most recent full-year payment of £0.79. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that James Latham has been growing its earnings per share at 11% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for James Latham's prospects of growing its dividend payments in the future.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think James Latham's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for James Latham that investors should know about before committing capital to this stock. 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.