IMI plc's (LON:IMI) dividend will be increasing from last year's payment of the same period to £0.192 on 17th of May. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.
View our latest analysis for IMI
IMI's Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, IMI's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 33.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was £0.371, compared to the most recent full-year payment of £0.283. This works out to be a decline of approximately 2.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Growth Potential
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. IMI has impressed us by growing EPS at 7.9% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for IMI's prospects of growing its dividend payments in the future.
Our Thoughts On IMI's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for IMI that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
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.
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.
Very undervalued with solid track record.
