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The board of Kingfisher plc (LON:KGF) has announced that it will pay a dividend on the 30th of June, with investors receiving £0.086 per share. Based on this payment, the dividend yield on the company's stock will be 4.6%, which is an attractive boost to shareholder returns.
Our free stock report includes 3 warning signs investors should be aware of before investing in Kingfisher. Read for free now.
Kingfisher'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, Kingfisher's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
See our latest analysis for Kingfisher
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.099 in 2015, and the most recent fiscal year payment was £0.124. This means that it has been growing its distributions at 2.3% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Kingfisher has been growing its earnings per share at 94% a year over the past five years. EPS has been growing well, but Kingfisher has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Kingfisher that investors need to be conscious of moving forward. Is Kingfisher 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.