SThree (LON:STEM) Will Pay A Larger Dividend Than Last Year At UK£0.08

By
Simply Wall St
Published
April 28, 2022
LSE:STEM
Source: Shutterstock

The board of 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 3.1% to 3.1%, providing a nice boost to shareholder returns.

Check out our latest analysis for SThree

SThree's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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 6.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

historic-dividend
LSE:STEM Historic Dividend April 28th 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from UK£0.14 in 2012 to the most recent annual payment of UK£0.11. This works out to be a decline of approximately 2.4% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

SThree Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. SThree has seen EPS rising for the last five years, at 8.4% per annum. SThree definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for SThree that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.