Focusrite's (LON:TUNE) Dividend Will Be £0.045

Focusrite plc's (LON:TUNE) investors are due to receive a payment of £0.045 per share on 7th of February. This means the annual payment will be 2.5% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Focusrite

Focusrite's Future Dividend Projections Appear Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to grow by 123.6% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

Focusrite Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was £0.012, compared to the most recent full-year payment of £0.066. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Focusrite's earnings per share has shrunk at 26% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Focusrite's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Focusrite (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.