Weir Group's (LON:WEIR) Dividend Will Be Increased To £0.135

The board of The Weir Group PLC (LON:WEIR) has announced that it will be paying its dividend of £0.135 on the 4th of November, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.

View our latest analysis for Weir Group

Weir 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. Based on the last payment, Weir Group was paying only paying out a fraction of earnings, but the payment was a massive 144% of cash flows. 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.

The next year is set to see EPS grow by 53.9%. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from £0.33 total annually to £0.27. Doing the maths, this is a decline of about 2.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Weir Group has impressed us by growing EPS at 12% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Weir Group's prospects of growing its dividend payments in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Weir Group 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Weir Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.