Diageo's (LON:DGE) Upcoming Dividend Will Be Larger Than Last Year's

The board of Diageo plc (LON:DGE) has announced that it will be paying its dividend of £0.4682 on the 20th of October, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.

Check out our latest analysis for Diageo

Diageo's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Diageo's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 41.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Diageo Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from £0.404 total annually to £0.762. This means that it has been growing its distributions at 6.5% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

We Could See Diageo's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. Diageo has impressed us by growing EPS at 5.7% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Diageo Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Diageo is a strong income stock thanks to its track record and growing earnings. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Diageo 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 yield dividend stocks.

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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.