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.
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.
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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.
About LSE:SMDS
DS Smith
Provides packaging solutions, paper products, and recycling services worldwide.
Second-rate dividend payer and slightly overvalued.
