Premier Investments (ASX:PMV) Is Increasing Its Dividend To AU$0.46

The board of Premier Investments Limited (ASX:PMV) has announced that it will be increasing its dividend by 35% on the 27th of July to AU$0.46. Despite this raise, the dividend yield of 3.2% is only a modest boost to shareholder returns.

Check out our latest analysis for Premier Investments

Premier Investments' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Premier Investments' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to fall by 4.4%. If the dividend continues along recent trends, we estimate the payout ratio could be 68%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Premier Investments Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from AU$0.36 in 2012 to the most recent annual payment of AU$0.80. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Premier Investments has seen EPS rising for the last five years, at 19% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Premier Investments' Dividend

Overall, a dividend increase is always good, and we think that Premier Investments is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 13 analysts we track are forecasting for Premier Investments for free with public analyst estimates for the company. Is Premier Investments 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.