In This Article:
The board of Spirax-Sarco Engineering plc (LON:SPX) has announced that it will be increasing its dividend by 8.2% on the 10th of November to £0.46, up from last year's comparable payment of £0.425. Even though the dividend went up, the yield is still quite low at only 1.5%.
View our latest analysis for Spirax-Sarco Engineering
Spirax-Sarco Engineering's Dividend Is Well Covered By Earnings
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last dividend, Spirax-Sarco Engineering is earning enough to cover the payment, but then it makes up 97% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Over the next year, EPS is forecast to expand by 51.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.
Spirax-Sarco Engineering Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was £0.571, compared to the most recent full-year payment of £1.52. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Spirax-Sarco Engineering May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 3.8% per annum over the last five years, which admittedly is a bit slow. Spirax-Sarco Engineering is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
Our Thoughts On Spirax-Sarco Engineering's Dividend
Overall, we always like to see the dividend being raised, but we don't think Spirax-Sarco Engineering will make a great income stock. While Spirax-Sarco Engineering is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Spirax-Sarco Engineering that you should be aware of before investing. Is Spirax-Sarco Engineering not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.