Spirax-Sarco Engineering's (LON:SPX) Dividend Will Be Increased To £0.46

Spirax-Sarco Engineering plc's (LON:SPX) periodic dividend will be increasing on the 10th of November to £0.46, with investors receiving 8.2% more than last year's £0.425. Even though the dividend went up, the yield is still quite low at only 1.5%.

View our latest analysis for Spirax-Sarco Engineering

Spirax-Sarco Engineering's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last dividend, Spirax-Sarco Engineering is earning enough to cover the payment, but then it makes up 97% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 49.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Spirax-Sarco Engineering Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was £0.571, compared to the most recent full-year payment of £1.52. This works out to be a compound annual growth rate (CAGR) of approximately 10% 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. Earnings per share has been crawling upwards at 3.8% per year. Spirax-Sarco Engineering is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Spirax-Sarco Engineering will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing 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. Is Spirax-Sarco Engineering 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.