Whitbread (LON:WTB) Will Pay A Dividend Of £0.346

Whitbread plc's (LON:WTB) investors are due to receive a payment of £0.346 per share on 6th of December. This makes the dividend yield 3.0%, which is above the industry average.

See our latest analysis for Whitbread

Whitbread'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. Prior to this announcement, Whitbread's dividend made up quite a large proportion of earnings but only 62% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 108.8%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 34% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from £0.688 total annually to £0.97. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Whitbread's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Whitbread has seen EPS rising for the last five years, at 7.6% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Whitbread will make a great income stock. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Whitbread that investors should know about before committing capital to this stock. Is Whitbread not quite the opportunity you were looking for? Why not check out our selection of top 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.