Chemring Group (LON:CHG) Will Pay A Larger Dividend Than Last Year At £0.019

The board of Chemring Group PLC (LON:CHG) has announced that it will be increasing its dividend by 19% on the 9th of September to £0.019, up from last year's comparable payment of £0.016. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

View our latest analysis for Chemring Group

Chemring Group's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Chemring Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 13.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

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. Since 2012, the dividend has gone from £0.148 total annually to £0.051. Dividend payments have fallen sharply, down 66% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Chemring Group has impressed us by growing EPS at 24% 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.

Chemring Group Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 7 analysts we track are forecasting for Chemring Group for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.