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The board of Reckitt Benckiser Group plc (LON:RKT) has announced that the dividend on 15th of September will be increased to £0.766, which will be 4.9% higher than last year's payment of £0.73 which covered the same period. This takes the dividend yield to 3.1%, which shareholders will be pleased with.
Check out our latest analysis for Reckitt Benckiser Group
Reckitt Benckiser Group's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Reckitt Benckiser Group was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 25.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.
Reckitt Benckiser Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from £1.26 total annually to £1.83. This means that it has been growing its distributions at 3.8% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth May Be Hard To Come By
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Over the past five years, it looks as though Reckitt Benckiser Group's EPS has declined at around 8.8% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
In Summary
Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. 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.
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. As an example, we've identified 2 warning signs for Reckitt Benckiser Group that you should be aware of before investing. Is Reckitt Benckiser Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.