Reckitt Benckiser Group (LON:RKT) Is Due To Pay A Dividend Of UK£1.02

The board of Reckitt Benckiser Group plc (LON:RKT) has announced that it will pay a dividend on the 9th of June, with investors receiving UK£1.02 per share. This means the annual payment is 2.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Reckitt Benckiser Group

Reckitt Benckiser Group's Distributions May Be Difficult To Sustain

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Reckitt Benckiser Group is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share could 43.4% over the next year if the trend of the last few years can't be broken. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Reckitt Benckiser Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was UK£1.15 in 2012, and the most recent fiscal year payment was UK£1.75. This implies that the company grew its distributions at a yearly rate of about 4.3% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though Reckitt Benckiser Group's EPS has declined at around 43% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Reckitt Benckiser Group's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Reckitt Benckiser Group is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Reckitt Benckiser Group (1 is a bit concerning!) that you should be aware of before investing. Is Reckitt Benckiser Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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