Springfield Properties' (LON:SPR) Shareholders Will Receive A Bigger Dividend Than Last Year

Springfield Properties Plc (LON:SPR) has announced that it will be increasing its dividend on the 31st of March to UK£0.015, which will be 15% higher than last year. This takes the annual payment to 4.2% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Springfield Properties

Springfield Properties' Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Springfield Properties' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 53.3% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Springfield Properties' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the first annual payment was UK£0.02, compared to the most recent full-year payment of UK£0.058. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Springfield Properties has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

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, Springfield Properties' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Springfield Properties is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

The company has also been raising capital by issuing stock equal to 18% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Springfield Properties' Dividend

Overall, we always like to see the dividend being raised, but we don't think Springfield Properties will make a great income stock. While Springfield Properties is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 2 warning signs for Springfield Properties that investors need to be conscious of moving forward. Is Springfield Properties not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.