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Spectris plc (LON:SXS) will increase its dividend from last year's comparable payment on the 27th of June to £0.566. This takes the dividend yield to 2.9%, which shareholders will be pleased with.
View our latest analysis for Spectris
Spectris' Projected Earnings Seem Likely To Cover Future Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Spectris was paying a whopping 198% as a dividend, but this only made up 36% 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.
Over the next year, EPS is forecast to fall by 20.1%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 47%, which is comfortable for the company to continue in the future.
Spectris Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was £0.44, compared to the most recent full-year payment of £0.832. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Spectris has only grown its earnings per share at 3.2% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
In Summary
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. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Spectris (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.