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Record plc (LON:REC) has announced that it will be increasing its dividend on the 30th of December to UK£0.018. This takes the dividend yield to 4.1%, which shareholders will be pleased with.
View our latest analysis for Record
Record's Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Record's was paying out quite a large proportion of earnings and 77% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
Earnings per share is forecast to rise by 24.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Dividend Volatility
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was UK£0.046, compared to the most recent full-year payment of UK£0.041. Doing the maths, this is a decline of about 1.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Record Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Record has seen EPS rising for the last five years, at 8.6% per annum. 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.
Our Thoughts On Record's Dividend
Overall, we always like to see the dividend being raised, but we don't think Record will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Record 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 performing dividend stock.
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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.