Law Debenture (LON:LWDB) Is Paying Out A Dividend Of £0.0875

The board of The Law Debenture Corporation p.l.c. (LON:LWDB) has announced that it will pay a dividend of £0.0875 per share on the 13th of April. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Law Debenture

Law Debenture's Distributions May Be Difficult To Sustain

Solid dividend yields are great, but they only really help us if the payment is sustainable. Law Debenture isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This makes us feel that the dividend will be hard to maintain.

Over the next year, EPS might fall by 4.7% based on recent performance. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Law Debenture Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was £0.135, compared to the most recent full-year payment of £0.305. This implies that the company grew its distributions at a yearly rate of about 8.5% over that duration. 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.

Law Debenture May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. In the last five years, Law Debenture's earnings per share has shrunk at approximately 4.7% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Law Debenture's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Law Debenture is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 4 warning signs for Law Debenture you should be aware of, and 3 of them are concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.