Stelrad Group (LON:SRAD) Is Increasing Its Dividend To £0.0481

The board of Stelrad Group PLC (LON:SRAD) has announced that it will be increasing its dividend by 1.9% on the 27th of May to £0.0481, up from last year's comparable payment of £0.0472. This will take the annual payment to 5.8% of the stock price, which is above what most companies in the industry pay.

Stelrad Group's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Stelrad Group's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 33.8%. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Stelrad Group

Stelrad Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 3 years was £0.0615 in 2022, and the most recent fiscal year payment was £0.0779. This means that it has been growing its distributions at 8.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Potential Is Shaky

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. Stelrad Group's earnings per share has shrunk at 55% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Stelrad Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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