Ramsdens Holdings' (LON:RFX) Upcoming Dividend Will Be Larger Than Last Year's

The board of Ramsdens Holdings PLC (LON:RFX) has announced that it will be paying its dividend of £0.033 on the 6th of October, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 4.2%.

View our latest analysis for Ramsdens Holdings

Ramsdens Holdings' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Ramsdens Holdings' dividend was only 40% of earnings, however it was paying out 275% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 8.2% if recent trends continue. 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

Looking back, Ramsdens Holdings' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of £0.026 in 2017 to the most recent total annual payment of £0.096. This works out to be a compound annual growth rate (CAGR) of approximately 24% 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.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Ramsdens Holdings has grown earnings per share at 8.2% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Ramsdens Holdings' prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. For example, we've identified 3 warning signs for Ramsdens Holdings (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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