Ibstock (LON:IBST) Is Increasing Its Dividend To £0.033

Ibstock plc's (LON:IBST) periodic dividend will be increasing on the 13th of September to £0.033, with investors receiving 32% more than last year's £0.025. This makes the dividend yield 4.1%, which is above the industry average.

View our latest analysis for Ibstock

Ibstock's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Ibstock's earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 23.9%. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Ibstock's Dividend Has Lacked Consistency

It's comforting to see that Ibstock 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. Since 2016, the annual payment back then was £0.044, compared to the most recent full-year payment of £0.083. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, Ibstock's earnings per share has shrunk at approximately 7.4% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Ibstock's Dividend

Overall, we always like to see the dividend being raised, but we don't think Ibstock will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Ibstock that investors should take into consideration. Is Ibstock not quite the opportunity you were looking for? Why not check out our selection of top 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.