The board of Lok'nStore Group Plc (LON:LOK) has announced that the dividend on 9th of June will be increased to £0.0575, which will be 15% higher than last year's payment of £0.05 which covered the same period. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.
Check out our latest analysis for Lok'nStore Group
Lok'nStore Group Doesn't Earn Enough To Cover Its Payments
Even a low dividend yield can be attractive if it is sustained for years on end. At the time of the last dividend payment, Lok'nStore Group was paying out a very large proportion of what it was earning and 112% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Over the next year, EPS is forecast to fall by 48.4%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 165%, which is definitely a bit high to be sustainable going forward.
Lok'nStore Group Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.05 in 2013, and the most recent fiscal year payment was £0.173. This means that it has been growing its distributions at 13% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
Lok'nStore Group Might Find It Hard To Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Lok'nStore Group has grown earnings per share at 18% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Lok'nStore Group that investors need to be conscious of moving forward. Is Lok'nStore Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.