Britvic (LON:BVIC) Is Paying Out A Larger Dividend Than Last Year

Britvic plc (LON:BVIC) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of February to £0.226. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Britvic

Britvic's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Britvic's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 43.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.177 in 2013 to the most recent total annual payment of £0.308. This works out to be a compound annual growth rate (CAGR) of approximately 5.7% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

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. Earnings have grown at around 2.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Britvic is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Britvic's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Britvic that investors should take into consideration. Is Britvic not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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