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

The board of Macfarlane Group PLC (LON:MACF) has announced that the dividend on 1st of June will be increased to UK£0.023, which will be 26% higher than last year. This will take the dividend yield from 2.4% to 2.4%, providing a nice boost to shareholder returns.

View our latest analysis for Macfarlane Group

Macfarlane Group's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Macfarlane Group's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 13.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from UK£0.015 to UK£0.032. This means that it has been growing its distributions at 7.5% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Macfarlane Group has impressed us by growing EPS at 13% per 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 Macfarlane Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Macfarlane Group that you should be aware of before investing. Is Macfarlane Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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