Travis Perkins (LON:TPK) Has Announced A Dividend Of £0.055

Travis Perkins plc's (LON:TPK) investors are due to receive a payment of £0.055 per share on 8th of November. This means that the annual payment is 1.2% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Travis Perkins

Travis Perkins' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Travis Perkins is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 33%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £0.347 in 2014 to the most recent total annual payment of £0.11. This works out to a decline of approximately 68% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Travis Perkins has seen EPS rising for the last five years, at 5.9% per annum. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 16 Travis Perkins analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Travis Perkins 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.