Stock Analysis

DFS Furniture's (LON:DFS) Dividend Is Being Reduced To £0.037

  •  Updated
LSE:DFS
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DFS Furniture plc (LON:DFS) has announced that on 29th of December, it will be paying a dividend of£0.037, which a reduction from last year's comparable dividend. This means that the annual payment is 6.7% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for DFS Furniture

DFS Furniture's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, DFS Furniture was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 84.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

historic-dividend
LSE:DFS Historic Dividend October 7th 2022

DFS Furniture's Dividend Has Lacked Consistency

Looking back, DFS Furniture's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the annual payment back then was £0.062, compared to the most recent full-year payment of £0.074. This implies that the company grew its distributions at a yearly rate of about 2.2% over that duration. 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that DFS Furniture's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.07% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, we think that DFS Furniture could make a reasonable income stock, even though it did cut the dividend this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for DFS Furniture that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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About LSE:DFS

DFS Furniture

DFS Furniture plc designs, manufactures, sells, delivers, installs, and retails upholstered furniture in the United Kingdom and Europe.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth2
Past Performance2
Financial Health4
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Good value with adequate balance sheet.