Smiths Group's (LON:SMIN) Upcoming Dividend Will Be Larger Than Last Year's

Smiths Group plc (LON:SMIN) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of November to £0.287. Despite this raise, the dividend yield of 2.6% is only a modest boost to shareholder returns.

See our latest analysis for Smiths Group

Smiths Group's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Smiths Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 70.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from £0.388 total annually to £0.416. Dividend payments have grown at less than 1% a year over this period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Smiths Group has been growing its earnings per share at 17% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Smiths Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Smiths Group is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Smiths Group that investors should take into consideration. 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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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.