Senior plc (LON:SNR) will increase its dividend on the 31st of May to £0.017, which is 70% higher than last year's payment from the same period of £0.01. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for Senior
Senior's Payment Has Solid Earnings Coverage
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, Senior was paying a whopping 148% as a dividend, but this only made up 31% of its overall earnings. 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.
EPS is set to fall by 9.9% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 30%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was £0.0479, compared to the most recent full-year payment of £0.023. The dividend has shrunk at around 7.1% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth May Be Hard To Come By
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Senior has seen earnings per share falling at 9.9% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Senior's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think Senior's payments are rock solid. While Senior is earning enough to cover the payments, the cash flows are lacking. 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. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. See if the 3 analysts are forecasting a turnaround in our free collection of analyst estimates here. 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.