Walker Crips Group (LON:WCW) Is Reducing Its Dividend To £0.0025

The board of Walker Crips Group plc (LON:WCW) has announced it will be reducing its dividend by 79% from last year's payment of £0.012 on the 6th of October, with shareholders receiving £0.0025. This means the annual payment is 6.2% of the current stock price, which is above the average for the industry.

See our latest analysis for Walker Crips Group

Walker Crips Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Walker Crips Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Unless the company can turn things around, EPS could fall by 11.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 54%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £0.0137 in 2013 to the most recent total annual payment of £0.0145. Its dividends have grown at less than 1% per annum over this time frame. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Walker Crips Group's EPS has declined at around 11% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Walker Crips Group (of which 1 makes us a bit uncomfortable!) you should know about. Is Walker Crips Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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