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Tate & Lyle plc's (LON:TATE) dividend will be increasing from last year's payment of the same period to £0.134 on 1st of August. This takes the dividend yield to 3.6%, which shareholders will be pleased with.
Tate & Lyle's Payment Could Potentially Have Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 36%, which is in a comfortable range for us.
See our latest analysis for Tate & Lyle
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was £0.322, compared to the most recent full-year payment of £0.198. This works out to be a decline of approximately 4.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 29% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
We should note that Tate & Lyle has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Tate & Lyle's Dividend Doesn't Look Great
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.