Smart Metering Systems (LON:SMS) Is Increasing Its Dividend To £0.0832

The board of Smart Metering Systems plc (LON:SMS) has announced that it will be paying its dividend of £0.0832 on the 25th of January, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.9%, which shareholders will be pleased with.

Check out our latest analysis for Smart Metering Systems

Smart Metering Systems Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Smart Metering Systems was paying out 250% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 46.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Smart Metering Systems Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was £0.023, compared to the most recent full-year payment of £0.303. This means that it has been growing its distributions at 29% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Smart Metering Systems May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Smart Metering Systems has seen earnings per share falling at 4.2% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Smart Metering Systems' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Smart Metering Systems is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 2 warning signs for Smart Metering Systems you should be aware of, and 1 of them shouldn't be ignored. Is Smart Metering Systems 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.