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Signet Jewelers Limited's (NYSE:SIG) periodic dividend will be increasing on the 23rd of May to $0.32, with investors receiving 10% more than last year's $0.29. Based on this payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.
Signet Jewelers' Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Signet Jewelers' Could Struggle to Maintain Dividend Payments In The Future
Signet Jewelers' Future Dividends May Potentially Be At Risk
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even though Signet Jewelers isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.
Earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we could see the payout ratio reach 115%, which is on the unsustainable side.
Check out our latest analysis for Signet Jewelers
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.72 in 2015, and the most recent fiscal year payment was $1.16. This means that it has been growing its distributions at 4.9% 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.
The Company Could Face Some Challenges Growing The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Signet Jewelers has seen EPS rising for the last five years, at 27% per annum. While the company is not yet turning a profit, it is growing at a good rate. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.
Our Thoughts On Signet Jewelers' Dividend
Overall, we always like to see the dividend being raised, but we don't think Signet Jewelers will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.