Senior (LON:SNR) Is Increasing Its Dividend To £0.017

Senior plc (LON:SNR) will increase its dividend on the 31st of May to £0.017, which is 70% higher than last year's payment from the same period of £0.01. Even though the dividend went up, the yield is still quite low at only 1.3%.

Check out our latest analysis for Senior

Senior's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Senior was paying a whopping 148% as a dividend, but this only made up 31% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, EPS could fall by 9.9% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 30%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of £0.0479 in 2014 to the most recent total annual payment of £0.023. This works out to be a decline of approximately 7.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Senior's EPS has declined at around 9.9% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Senior's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Senior is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. 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.