Spirax-Sarco Engineering (LON:SPX) Has Announced That It Will Be Increasing Its Dividend To £1.14

Spirax-Sarco Engineering plc (LON:SPX) will increase its dividend from last year's comparable payment on the 24th of May to £1.14. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Spirax-Sarco Engineering

Spirax-Sarco Engineering'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. The last dividend was quite easily covered by Spirax-Sarco Engineering's 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 51.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.

Spirax-Sarco Engineering Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was £0.57 in 2014, and the most recent fiscal year payment was £1.60. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. In the last five years, Spirax-Sarco Engineering's earnings per share has shrunk at approximately 3.8% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Spirax-Sarco Engineering's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. Taking the debate a bit further, we've identified 1 warning sign for Spirax-Sarco Engineering that investors need to be conscious of moving forward. 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.