Smiths Group (LON:SMIN) Has Announced That It Will Be Increasing Its Dividend To £0.129

Smiths Group plc's (LON:SMIN) periodic dividend will be increasing on the 17th of May to £0.129, with investors receiving 4.9% more than last year's £0.123. This takes the annual payment to 2.4% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Smiths Group

Smiths Group's Distributions May Be Difficult To Sustain

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Smiths Group isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. These payout levels would generally be quite difficult to keep up.

Over the next year, EPS is forecast to expand by 66.8%. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was £0.38, compared to the most recent full-year payment of £0.396. Its dividends have grown at less than 1% per annum over this time frame. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited 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. Earnings per share has been sinking by 20% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We're Not Big Fans Of Smiths Group's Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Smiths Group that investors should know about before committing capital to this stock. Is Smiths Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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