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

The board of Reach plc (LON:RCH) has announced that it will pay a dividend on the 31st of May, with investors receiving £0.0446 per share. Based on this payment, the dividend yield on the company's stock will be 9.4%, which is an attractive boost to shareholder returns.

View our latest analysis for Reach

Reach Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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.

Earnings per share could rise by 18.7% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 95%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was £0.0288, compared to the most recent full-year payment of £0.0734. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Reach Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Reach has impressed us by growing EPS 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.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

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. To that end, Reach has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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