Dechra Pharmaceuticals' (LON:DPH) Dividend Will Be Increased To £0.125

Dechra Pharmaceuticals PLC's (LON:DPH) periodic dividend will be increasing on the 13th of April to £0.125, with investors receiving 4.2% more than last year's £0.12. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Dechra Pharmaceuticals

Dechra Pharmaceuticals' Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

The next year is set to see EPS grow by 154.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dechra Pharmaceuticals Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.123 in 2013, and the most recent fiscal year payment was £0.449. This means that it has been growing its distributions at 14% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Dechra Pharmaceuticals has seen earnings per share falling at 5.3% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Dechra Pharmaceuticals will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Dechra Pharmaceuticals (of which 1 is a bit unpleasant!) you should know about. Is Dechra Pharmaceuticals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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