The board of IMI plc (LON:IMI) has announced that it will pay a dividend on the 16th of September, with investors receiving £0.10 per share. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.
See our latest analysis for IMI
IMI'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. Before making this announcement, IMI was easily earning enough to 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 33.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.371 in 2014, and the most recent fiscal year payment was £0.283. This works out to be a decline of approximately 2.7% 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.
IMI Could Grow Its Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that IMI has been growing its earnings per share at 9.3% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like IMI'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. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 IMI that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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About LSE:IMI
IMI
An engineering company, engages in the design, manufacturing, and servicing of engineering products in the United Kingdom, Germany, rest of Europe, the United States, rest of the Americas, China, rest of the Asia Pacific, the Middle East, and Africa.
Undervalued with solid track record.
