Galliford Try Holdings (LON:GFRD) Has Announced A Dividend Of £0.04

The board of Galliford Try Holdings plc (LON:GFRD) has announced that it will pay a dividend of £0.04 per share on the 12th of April. The payment will take the dividend yield to 4.2%, which is in line with the average for the industry.

See our latest analysis for Galliford Try Holdings

Galliford Try Holdings' Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Galliford Try Holdings was paying out 74% of earnings, but a comparatively small 17% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 80.7%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

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 2014, the annual payment back then was £0.37, compared to the most recent full-year payment of £0.105. This works out to a decline of approximately 72% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Galliford Try Holdings' EPS has fallen by approximately 21% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Galliford Try Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Galliford Try Holdings' payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 Galliford Try Holdings that investors should take into consideration. Is Galliford Try Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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