Stelrad Group (LON:SRAD) Is Due To Pay A Dividend Of £0.0472

The board of Stelrad Group PLC (LON:SRAD) has announced that it will pay a dividend of £0.0472 per share on the 29th of May. Based on this payment, the dividend yield on the company's stock will be 6.9%, which is an attractive boost to shareholder returns.

See our latest analysis for Stelrad Group

Stelrad Group's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Stelrad Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 42.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Stelrad Group's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2022, the annual payment back then was £0.0615, compared to the most recent full-year payment of £0.0764. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Stelrad Group's earnings per share has shrunk at 71% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Stelrad Group's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Stelrad Group's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Stelrad Group 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. For example, we've picked out 2 warning signs for Stelrad Group that investors should know about before committing capital to this stock. 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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