SThree (LON:STEM) Is Paying Out A Larger Dividend Than Last Year

SThree plc's (LON:STEM) dividend will be increasing from last year's payment of the same period to £0.116 on 7th of June. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for SThree

SThree's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, SThree's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 17.3%. If the dividend continues on this path, the payout ratio could be 33% 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. The dividend has gone from an annual total of £0.14 in 2014 to the most recent total annual payment of £0.166. This means that it has been growing its distributions at 1.7% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

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. We are encouraged to see that SThree has grown earnings per share at 9.6% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for SThree's prospects of growing its dividend payments in the future.

We Really Like SThree's Dividend

Overall, a dividend increase is always good, and we think that SThree is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign 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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