Marshalls (LON:MSLH) Has Announced A Dividend Of £0.057

The board of Marshalls plc (LON:MSLH) has announced that it will pay a dividend on the 1st of July, with investors receiving £0.057 per share. This means that the annual payment is 3.0% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Marshalls

Marshalls' Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Marshalls' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to expand by 199.0%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 40% which brings it into quite a comfortable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from £0.0525 total annually to £0.083. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Marshalls' EPS has declined at around 22% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Marshalls' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Marshalls that investors should take into consideration. 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.