In This Article:
The board of Carr's Group plc (LON:CARR) has announced that it will pay a dividend on the 10th of March, with investors receiving £0.0285 per share. Based on this payment, the dividend yield on the company's stock will be 4.2%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Carr's Group
Carr's Group's Long-term Dividend Outlook appears Promising
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even while not generating a profit, Carr's Group is paying out most of its free cash flows as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.
According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 12%, which makes us pretty comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was £0.0335, compared to the most recent full-year payment of £0.052. This works out to be a compound annual growth rate (CAGR) of approximately 4.5% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
Dividend Growth Potential Is Shaky
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. Carr's Group's EPS has fallen by approximately 42% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
Carr's Group's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Carr's Group's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.