Chemring Group's (LON:CHG) Shareholders Will Receive A Bigger Dividend Than Last Year

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. Although the dividend is now higher, the yield is only 1.4%, which is below the industry average.

View our latest analysis for Chemring Group

Chemring Group's Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. 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.

The next year is set to see EPS grow by 5.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% 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 1 cut in the last 10 years. Since 2011, the first annual payment was UK£0.12, compared to the most recent full-year payment of UK£0.042. The dividend has shrunk at around 9.8% 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

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Chemring Group has impressed us by growing EPS at 40% per year over the past five years. 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.

Chemring Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Chemring Group is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Chemring Group that investors should take into consideration. 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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