Bodycote (LON:BOY) Will Pay A Larger Dividend Than Last Year At £0.064

The board of Bodycote plc (LON:BOY) has announced that it will be increasing its dividend by 3.2% on the 4th of November to £0.064, up from last year's comparable payment of £0.062. This takes the dividend yield to 3.3%, which shareholders will be pleased with.

Check out 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. Prior to this announcement, Bodycote's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 44.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from £0.109 total annually to £0.20. This works out to be a compound annual growth rate (CAGR) of approximately 6.3% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, Bodycote's earnings per share has shrunk at approximately 4.8% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Bodycote's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Bodycote's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 Bodycote that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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