DS Smith Plc (LON:SMDS) has announced that it will be increasing its dividend on the 1st of November to UK£0.10. This will take the dividend yield from 4.3% to 5.3%, providing a nice boost to shareholder returns.
Check out our latest analysis for DS Smith
DS Smith's Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, DS Smith was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 41.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from UK£0.059 in 2012 to the most recent annual payment of UK£0.12. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
DS Smith May Find It Hard To Grow The Dividend
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. DS Smith hasn't seen much change in its earnings per share over the last five years.
Our Thoughts On DS Smith's Dividend
Overall, we always like to see the dividend being raised, but we don't think DS Smith will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. Taking the debate a bit further, we've identified 1 warning sign for DS Smith that investors need to be conscious of moving forward. Is DS Smith not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
