Johnson Matthey (LON:JMAT) Has Affirmed Its Dividend Of £0.55

Johnson Matthey Plc (LON:JMAT) has announced that it will pay a dividend of £0.55 per share on the 1st of August. This makes the dividend yield 4.4%, which will augment investor returns quite nicely.

View our latest analysis for Johnson Matthey

Johnson Matthey's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Johnson Matthey's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 35.6% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.61, compared to the most recent full-year payment of £0.77. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

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. Although it's important to note that Johnson Matthey's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Johnson Matthey's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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 instance, we've picked out 1 warning sign for Johnson Matthey that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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