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

Forterra plc (LON:FORT) will increase its dividend on the 14th of October to £0.046, which is 44% higher than last year's payment from the same period of £0.032. The payment will take the dividend yield to 3.4%, which is in line with the average for the industry.

See our latest analysis for Forterra

Forterra's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Forterra was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 27.7%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Forterra's Dividend Has Lacked Consistency

Forterra has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the annual payment back then was £0.04, compared to the most recent full-year payment of £0.099. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 4.4% per year. Growth of 4.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Forterra's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 picked out 1 warning sign for Forterra that investors should know about before committing capital to this stock. Is Forterra not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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