Redrow (LON:RDW) Has Announced A Dividend Of £0.10

The board of Redrow plc (LON:RDW) has announced that it will pay a dividend on the 6th of April, with investors receiving £0.10 per share. This payment means that the dividend yield will be 6.0%, which is around the industry average.

Check out our latest analysis for Redrow

Redrow Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last payment was quite easily covered by earnings, but it made up 139% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to fall by 54.8%. If the dividend continues along recent trends, we estimate the payout ratio could reach 136%, which could put the dividend in jeopardy if the company's earnings don't improve.

Redrow's Dividend Has Lacked Consistency

Redrow has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from £0.0105 total annually to £0.32. This means that it has been growing its distributions at 46% per annum over that time. Redrow 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.

Dividend Growth May Be Hard To Come By

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. Over the past five years, it looks as though Redrow's EPS has declined at around 7.2% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Redrow's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Redrow is earning enough to cover the payments, the cash flows are lacking. We don't think Redrow is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Redrow (of which 1 shouldn't be ignored!) you should know about. 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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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.