Dechra Pharmaceuticals (LON:DPH) Is Paying Out A Larger Dividend Than Last Year

Dechra Pharmaceuticals PLC (LON:DPH) will increase its dividend from last year's comparable payment on the 18th of November to £0.3289. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.

View our latest analysis for Dechra Pharmaceuticals

Dechra Pharmaceuticals' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. At the time of the last dividend payment, Dechra Pharmaceuticals was paying out a very large proportion of what it was earning and 113% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 71.0% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 59% which brings it into quite a comfortable range.

Dechra Pharmaceuticals Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was £0.121 in 2012, and the most recent fiscal year payment was £0.449. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Dechra Pharmaceuticals has seen EPS rising for the last five years, at 13% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On Dechra Pharmaceuticals' Dividend

Overall, we always like to see the dividend being raised, but we don't think Dechra Pharmaceuticals will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Dechra Pharmaceuticals that investors should take into consideration. Is Dechra Pharmaceuticals not quite the opportunity you were looking for? Why not check out our selection of top dividend 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.