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.
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.
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.
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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Mears Group plc, through its subsidiaries, provides a range of outsourced services to the public and private sectors in the United Kingdom.
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Flawless balance sheet, good value and pays a dividend.