Stelrad Group's (LON:SRAD) Dividend Will Be £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 5.9%, which is an attractive boost to shareholder returns.

View our latest analysis for Stelrad Group

Stelrad Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Stelrad Group's dividend was comfortably covered by both cash flow and earnings. 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 42.8% 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

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 2 years was £0.0615 in 2022, and the most recent fiscal year payment was £0.0764. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Stelrad Group's EPS has declined at around 71% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Stelrad Group's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.

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. Taking the debate a bit further, we've identified 2 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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