Chemring Group (LON:CHG) Is Due To Pay A Dividend Of £0.026

Chemring Group PLC's (LON:CHG) investors are due to receive a payment of £0.026 per share on 6th of September. Based on this payment, the dividend yield for the company will be 1.9%, which is fairly typical for the industry.

See our latest analysis for Chemring Group

Chemring Group's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Chemring Group's dividend was only 64% of earnings, however it was paying out 175% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 107.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The last annual payment of £0.072 was flat on the annual payment from10 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Chemring Group has grown earnings per share at 17% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Chemring Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Chemring Group will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Chemring Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Chemring Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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