Henry Boot (LON:BOOT) Will Pay A Larger Dividend Than Last Year At UK£0.036

Henry Boot PLC (LON:BOOT) has announced that it will be increasing its dividend on the 1st of June to UK£0.036, which will be 10.0% higher than last year. This takes the annual payment to 1.9% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Henry Boot

Henry Boot's Dividend Is 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. Prior to this announcement, Henry Boot's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 35.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

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. The dividend has gone from UK£0.043 in 2012 to the most recent annual payment of UK£0.06. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, Henry Boot's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Henry Boot's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Henry Boot's payments are rock solid. While Henry Boot is earning enough to cover the payments, the cash flows are lacking. We don't think Henry Boot is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Henry Boot (1 is a bit concerning!) that you should be aware of before investing. Is Henry Boot 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.