DS Smith (LON:SMDS) Is Increasing Its Dividend To £0.102

July 22, 2022
  •  Updated
September 06, 2022
Source: Shutterstock

DS Smith Plc's (LON:SMDS) dividend will be increasing from last year's payment of the same period to £0.102 on 1st of November. This makes the dividend yield 5.3%, which is above the industry average.

See our latest analysis for DS Smith

DS Smith'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, DS Smith's dividend made up quite a large proportion of earnings but only 42% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 41.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.

LSE:SMDS Historic Dividend July 22nd 2022

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. The dividend has gone from an annual total of £0.059 in 2012 to the most recent total annual payment of £0.15. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, DS Smith's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think DS Smith's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for DS Smith that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Valuation is complex, but we're helping make it simple.

Find out whether DS Smith is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis