Stelrad Group (LON:SRAD) Is Due To Pay A Dividend Of £0.0304

Stelrad Group PLC's (LON:SRAD) investors are due to receive a payment of £0.0304 per share on 24th of October. This makes the dividend yield about the same as the industry average at 4.9%.

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Stelrad Group's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 198% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 54%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 56% which is fairly sustainable.

Check out our latest analysis for Stelrad Group

Stelrad Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2021, the annual payment back then was £0.0615, compared to the most recent full-year payment of £0.0779. This means that it has been growing its distributions at 6.1% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Stelrad Group's EPS has declined at around 10% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.

Stelrad Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Stelrad Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 4 warning signs for Stelrad Group that investors need to be conscious of moving forward. Is Stelrad Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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