Renew Holdings plc (LON:RNWH) Passed Our Checks, And It's About To Pay A UK£0.083 Dividend

Renew Holdings plc (LON:RNWH) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 28th of January, you won't be eligible to receive this dividend, when it is paid on the 5th of March.

Renew Holdings's next dividend payment will be UK£0.083 per share, on the back of last year when the company paid a total of UK£0.083 to shareholders. Based on the last year's worth of payments, Renew Holdings has a trailing yield of 1.5% on the current stock price of £5.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Renew Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Renew Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Renew Holdings paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Renew Holdings generated enough free cash flow to afford its dividend. Luckily it paid out just 12% of its free cash flow last year.

It's positive to see that Renew Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Renew Holdings, with earnings per share up 9.8% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Renew Holdings has increased its dividend at approximately 11% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Renew Holdings for the upcoming dividend? Earnings per share growth has been growing somewhat, and Renew Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Renew Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Renew Holdings, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Renew Holdings is facing. To help with this, we've discovered 1 warning sign for Renew Holdings that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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