Stock Analysis

Mears Group (LON:MER) Is Increasing Its Dividend To £0.0325

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LSE:MER
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Mears Group plc (LON:MER) will increase its dividend on the 28th of October to £0.0325, which is 30% higher than last year's payment from the same period of £0.025. This makes the dividend yield 3.9%, which is above the industry average.

Check out our latest analysis for Mears Group

Mears Group's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, Mears Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 16.6%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

historic-dividend
LSE:MER Historic Dividend August 7th 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was £0.075, compared to the most recent full-year payment of £0.08. Its dividends have grown at less than 1% per annum over this time frame. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Mears Group May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, Mears Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Mears Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Mears Group that investors should know about before committing capital to this stock. Is Mears Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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About LSE:MER

Mears Group

Mears Group plc, through its subsidiaries, provides a range of outsourced services to the public and private sectors in the United Kingdom.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth0
Past Performance4
Financial Health6
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet, good value and pays a dividend.