Bodycote (LON:BOY) Has Announced A Dividend Of £0.069

Bodycote plc (LON:BOY) will pay a dividend of £0.069 on the 7th of November. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Bodycote

Bodycote's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Bodycote's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 77.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was £0.135, compared to the most recent full-year payment of £0.229. This means that it has been growing its distributions at 5.4% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Bodycote might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Bodycote's earnings per share has shrunk at approximately 8.4% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Bodycote that you should be aware of before investing. 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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