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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 4.2%, which is below the industry average.
Check out our latest analysis for Ramsdens Holdings
Ramsdens Holdings' Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Ramsdens Holdings' dividend was only 40% of earnings, however it was paying out 275% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
If the trend of the last few years continues, EPS will grow by 8.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.
Ramsdens Holdings' Dividend Has Lacked Consistency
It's comforting to see that Ramsdens Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 6 years was £0.026 in 2017, and the most recent fiscal year payment was £0.096. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. 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.
Ramsdens Holdings Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Ramsdens Holdings has been growing its earnings per share at 8.2% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On Ramsdens Holdings' Dividend
In summary, while it's always good to see the dividend being raised, we don't think Ramsdens Holdings' payments are rock solid. While Ramsdens Holdings is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
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. Just as an example, we've come across 3 warning signs for Ramsdens Holdings you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.