Numis' (LON:NUM) Shareholders Will Receive A Smaller Dividend Than Last Year

Numis Corporation Plc's (LON:NUM) dividend is being reduced by 6.3% to £0.075 per share on 10th of February, in comparison to last year's comparable payment of £0.08. However, the dividend yield of 7.4% is still a decent boost to shareholder returns.

See our latest analysis for Numis

Numis Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 109% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to fall by 14.2% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 126%, which could put the dividend in jeopardy if the company's earnings don't improve.

Numis Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was £0.08 in 2012, and the most recent fiscal year payment was £0.135. This means that it has been growing its distributions at 5.4% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Numis' earnings per share has shrunk at 14% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Numis' Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. Dividend payments have been pretty consistent for a while, but we do think the payout ratios are a little bit high. 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. To that end, Numis has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. 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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