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Travis Perkins plc (LON:TPK) has announced that it will pay a dividend of £0.055 per share on the 8th of November. Based on this payment, the dividend yield will be 1.2%, which is lower than the average for the industry.
See our latest analysis for Travis Perkins
Travis Perkins' Earnings Easily Cover The Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Travis Perkins is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, so there isn't too much pressure on the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from £0.347 total annually to £0.11. This works out to a decline of approximately 68% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
We Could See Travis Perkins' Dividend Growing
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Travis Perkins has grown earnings per share at 5.9% per year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.
In Summary
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 16 analysts we track are forecasting for Travis Perkins for free with public analyst estimates for the company. Is Travis Perkins not quite the opportunity you were looking for? Why not check out our selection of top 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.