Chemring Group (LON:CHG) Has Announced That It Will Be Increasing Its Dividend To £0.038

The board of Chemring Group PLC (LON:CHG) has announced that it will be paying its dividend of £0.038 on the 14th of April, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.0%.

See our latest analysis for Chemring Group

Chemring Group's 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. Before making this announcement, Chemring Group was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 17.8%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of £0.148 in 2013 to the most recent total annual payment of £0.057. The dividend has shrunk at around 9.1% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. We are encouraged to see that Chemring Group has grown earnings per share at 55% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Chemring Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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 2 warning signs for Chemring Group that you should be aware of before investing. Is Chemring Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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