Chemring Group (LON:CHG) Will Pay A Larger Dividend Than Last Year At UK£0.016

Chemring Group PLC (LON:CHG) has announced that it will be increasing its dividend on the 10th of September to UK£0.016, which will be 23% higher than last year. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Chemring Group

Chemring Group's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, Chemring Group's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 5.2% over the next year. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from UK£0.12 in 2011 to the most recent annual payment of UK£0.042. This works out to be a decline of approximately 9.8% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Chemring Group has seen EPS rising for the last five years, at 40% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright 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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 1 warning sign for Chemring Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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