Schroders plc's (LON:SDR) dividend will be increasing to UK£0.37 on 23rd of September. This will take the dividend yield from 3.2% to 3.2%, providing a nice boost to shareholder returns.
Check out our latest analysis for Schroders
Schroders' Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Schroders' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 4.1%. If the dividend continues on this path, the payout ratio could be 58% by next year, which we think can be pretty sustainable going forward.
Schroders Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from UK£0.37 in 2011 to the most recent annual payment of UK£1.16. This means that it has been growing its distributions at 12% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 4.0% a year for the past five years, which isn't massive but still better than seeing them shrink. Schroders is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
We Really Like Schroders' Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Schroders that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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This article by Simply Wall St is general in nature. 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.
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About LSE:SDR
Established dividend payer and good value.
