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The board of Stelrad Group PLC (LON:SRAD) has announced that it will pay a dividend on the 27th of October, with investors receiving £0.0292 per share. This means the dividend yield will be fairly typical at 6.8%.
View our latest analysis for Stelrad Group
Stelrad Group's Earnings Easily Cover The Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Stelrad Group's dividend made up quite a large proportion of earnings but only 39% of free cash flows. This leaves plenty of cash for reinvestment into the business.
The next year is set to see EPS grow by 109.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 40% which would be quite comfortable going to take the dividend forward.
Stelrad Group Doesn't Have A Long Payment History
It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Stelrad Group's EPS has fallen by approximately 69% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Our Thoughts On Stelrad Group's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Stelrad Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
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 2 warning signs for Stelrad Group that investors should know about before committing capital to this stock. 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.