Grafton Group (LON:GFTU) Is Increasing Its Dividend To £0.265

The board of Grafton Group plc (LON:GFTU) has announced that the dividend on 15th of May will be increased to £0.265, which will be 1.9% higher than last year's payment of £0.26 which covered the same period. This makes the dividend yield 4.2%, which is above the industry average.

Grafton Group's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Grafton Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 33.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Grafton Group

Grafton Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was £0.108, compared to the most recent full-year payment of £0.37. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Grafton Group May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Grafton Group hasn't seen much change in its earnings per share over the last five years. The company has been growing at a pretty soft 0.4% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

We Really Like Grafton 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 9 Grafton Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Grafton Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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