Spur Corporation Ltd (JSE:SUR) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of September to ZAR1.10. The payment will take the dividend yield to 7.8%, which is in line with the average for the industry.
Check out our latest analysis for Spur
Spur's Earnings Easily Cover The Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment made up 74% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Looking forward, earnings per share could rise by 10.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 67% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from ZAR1.10 total annually to ZAR2.20. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Spur has grown earnings per share at 10% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
We Really Like Spur's Dividend
Overall, a dividend increase is always good, and we think that Spur is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Spur that you should be aware of before investing. Is Spur not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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