Forterra's (LON:FORT) Upcoming Dividend Will Be Larger Than Last Year's

The board of Forterra plc (LON:FORT) has announced that it will be increasing its dividend by 44% on the 14th of October to £0.046, up from last year's comparable payment of £0.032. The payment will take the dividend yield to 3.4%, which is in line with the average for the industry.

View our latest analysis for Forterra

Forterra's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, Forterra's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 30.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.

Forterra's Dividend Has Lacked Consistency

It's comforting to see that Forterra has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 6 years was £0.04 in 2016, and the most recent fiscal year payment was £0.099. This means that it has been growing its distributions at 16% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.3% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Forterra has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Forterra that investors should take into consideration. 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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