Fuller Smith & Turner (LON:FSTA) Will Pay A Larger Dividend Than Last Year At £0.1235

Fuller, Smith & Turner P.L.C. (LON:FSTA) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of July to £0.1235. This makes the dividend yield 3.3%, which is above the industry average.

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Fuller Smith & Turner's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Fuller Smith & Turner's dividend was only 42% of earnings, however it was paying out 245% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 9.7% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 43%, which is comfortable for the company to continue in the future.

Check out our latest analysis for Fuller Smith & Turner

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was £0.166, compared to the most recent full-year payment of £0.198. This works out to be a compound annual growth rate (CAGR) of approximately 1.8% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

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 impressed us by growing EPS at 53% per year over the past five years. Fuller Smith & Turner is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

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. While Fuller Smith & Turner is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Fuller Smith & Turner you should be aware of, and 1 of them is potentially serious. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.