Caledonia Investments (LON:CLDN) Is Increasing Its Dividend To £0.182

The board of Caledonia Investments plc (LON:CLDN) has announced that it will be paying its dividend of £0.182 on the 5th of January, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.6%, which is below the industry average.

View our latest analysis for Caledonia Investments

Caledonia Investments' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Caledonia Investments was paying a whopping 141% as a dividend, but this only made up 9.4% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 13.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Caledonia Investments Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.429 in 2012, and the most recent fiscal year payment was £0.648. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Caledonia Investments has impressed us by growing EPS at 13% 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 Caledonia Investments' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Caledonia Investments' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. See if management have their own wealth at stake, by checking insider shareholdings in Caledonia Investments stock. 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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