Marshalls' (LON:MSLH) Dividend Will Be Increased To UK£0.096

The board of Marshalls plc (LON:MSLH) has announced that it will be increasing its dividend on the 1st of July to UK£0.096. This takes the annual payment to 2.2% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Marshalls

Marshalls' Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite comfortably covered by Marshalls' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 87% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 21.5%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from UK£0.052 to UK£0.19. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Marshalls has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Marshalls' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Marshalls has seen EPS rising for the last five years, at 7.8% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On Marshalls' Dividend

Overall, we always like to see the dividend being raised, but we don't think Marshalls will make a great income stock. While Marshalls is earning enough to cover the dividend, we are generally unimpressed with its future prospects. 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. Taking the debate a bit further, we've identified 1 warning sign for Marshalls that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.