Caledonia Investments (LON:CLDN) Will Pay A Larger Dividend Than Last Year At £0.5147

The board of Caledonia Investments Plc (LON:CLDN) has announced that it will be paying its dividend of £0.5147 on the 1st of August, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.

View our latest analysis for Caledonia Investments

Caledonia Investments' Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Caledonia Investments' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 0.9% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Caledonia Investments Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was £0.472, compared to the most recent full-year payment of £0.704. This implies that the company grew its distributions at a yearly rate of about 4.1% 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's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Caledonia Investments' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Caledonia Investments Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. 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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