Reach (LON:RCH) Is Paying Out A Dividend Of £0.0446

Reach plc (LON:RCH) has announced that it will pay a dividend of £0.0446 per share on the 31st of May. This makes the dividend yield 10.0%, which will augment investor returns quite nicely.

Check out our latest analysis for Reach

Reach's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the dividend made up 107% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Looking forward, earnings per share is forecast to rise by 193.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.0288 in 2014, and the most recent fiscal year payment was £0.0734. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Reach might have put its house in order since then, but we remain cautious.

Reach's Dividend Might Lack Growth

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. We are encouraged to see that Reach has grown earnings per share at 19% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

Reach's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Reach's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Reach has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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. Just as an example, we've come across 3 warning signs for Reach you should be aware of, and 1 of them shouldn't be ignored. 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.