Fuller Smith & Turner (LON:FSTA) Is Due To Pay A Dividend Of £0.0785

The board of Fuller, Smith & Turner P.L.C. (LON:FSTA) has announced that it will pay a dividend of £0.0785 per share on the 2nd of January. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

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Fuller Smith & Turner's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 486% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 30%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 4.4% which is fairly sustainable.

See our latest analysis for Fuller Smith & Turner

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of £0.166 in 2015 to the most recent total annual payment of £0.198. This means that it has been growing its distributions at 1.8% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Could Be Constrained

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. Fuller Smith & Turner has seen EPS rising for the last five years, at 65% per annum. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Fuller Smith & Turner's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Fuller Smith & Turner that investors should take into consideration. Is Fuller Smith & Turner not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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