Sleep Country Canada Holdings' (TSE:ZZZ) Dividend Will Be Increased To CA$0.237

Sleep Country Canada Holdings Inc. (TSE:ZZZ) will increase its dividend from last year's comparable payment on the 31st of August to CA$0.237. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Sleep Country Canada Holdings

Sleep Country Canada Holdings' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Sleep Country Canada Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 10.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sleep Country Canada Holdings' Dividend Has Lacked Consistency

It's comforting to see that Sleep Country Canada Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from CA$0.52 total annually to CA$0.948. This implies that the company grew its distributions at a yearly rate of about 7.8% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sleep Country Canada Holdings has seen EPS rising for the last five years, at 11% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Sleep Country Canada Holdings' prospects of growing its dividend payments in the future.

We Really Like Sleep Country Canada Holdings' Dividend

Overall, a dividend increase is always good, and we think that Sleep Country Canada Holdings is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Sleep Country Canada Holdings you should be aware of, and 1 of them is a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield 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.