Ramsdens Holdings (LON:RFX) Is Paying Out A Larger Dividend Than Last Year

Ramsdens Holdings PLC (LON:RFX) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of October to £0.033. Even though the dividend went up, the yield is still quite low at only 4.8%.

View our latest analysis for Ramsdens Holdings

Ramsdens Holdings' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Ramsdens Holdings was paying only paying out a fraction of earnings, but the payment was a massive 358% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 8.2% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Ramsdens Holdings' Dividend Has Lacked Consistency

It's comforting to see that Ramsdens Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the annual payment back then was £0.026, compared to the most recent full-year payment of £0.126. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See Ramsdens Holdings' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Ramsdens Holdings has impressed us by growing EPS at 8.2% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Ramsdens Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Ramsdens Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Ramsdens Holdings (of which 1 doesn't sit too well with us!) 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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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.