Bunzl plc (LON:BNZL) will increase its dividend from last year's comparable payment on the 3rd of January to £0.182. This makes the dividend yield about the same as the industry average at 2.3%.
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Bunzl was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 14.0%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.282 in 2013, and the most recent fiscal year payment was £0.636. This implies that the company grew its distributions at a yearly rate of about 8.5% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
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 Bunzl has grown earnings per share at 8.0% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 16 Bunzl analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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