Smiths News (LON:SNWS) Is Increasing Its Dividend To £0.054

The board of Smiths News plc (LON:SNWS) has announced that the dividend on 6th of February will be increased to £0.054, which will be 96% higher than last year's payment of £0.0275 which covered the same period. This takes the dividend yield to 7.5%, which shareholders will be pleased with.

Check out our latest analysis for Smiths News

Smiths News' Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Smiths News' earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 7.6%. If the dividend continues along recent trends, we estimate the payout ratio could be 63%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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 dividend has gone from £0.097 total annually to £0.0515. The dividend has shrunk at around 6.1% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Smiths News May Find It Hard To Grow The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings has been rising at 3.7% per annum over the last five years, which admittedly is a bit slow. Smiths News is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Smiths News has 4 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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