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The board of Ramsdens Holdings PLC (LON:RFX) has announced that it will be paying its dividend of £0.033 on the 6th of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 4.8%, which is below the industry average.
View our latest analysis for Ramsdens Holdings
Ramsdens Holdings' Earnings Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Ramsdens Holdings was paying a whopping 358% as a dividend, but this only made up 37% 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.
Looking forward, earnings per share could rise by 8.2% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.
Ramsdens Holdings' Dividend Has Lacked Consistency
Ramsdens Holdings has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.026 in 2017 to the most recent total annual payment of £0.126. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
We Could See Ramsdens Holdings' Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Ramsdens Holdings has grown earnings per share at 8.2% per year over the past five years. Ramsdens Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Our Thoughts On Ramsdens Holdings' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Ramsdens Holdings (of which 1 can't be ignored!) 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.