SThree (LON:STEM) Is Increasing Its Dividend To UK£0.08

By
Simply Wall St
Published
March 03, 2022
LSE:STEM
Source: Shutterstock

SThree plc (LON:STEM) has announced that it will be increasing its dividend on the 10th of June to UK£0.08. This will take the dividend yield from 2.6% to 2.6%, providing a nice boost to shareholder returns.

View our latest analysis for SThree

SThree's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, SThree was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 4.7% over the next year. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

historic-dividend
LSE:STEM Historic Dividend March 3rd 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was UK£0.14, compared to the most recent full-year payment of UK£0.11. Doing the maths, this is a decline of about 2.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

SThree Could Grow Its 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. SThree has impressed us by growing EPS at 8.4% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

SThree Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for SThree that investors need to be conscious of moving forward. Is SThree not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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