Dechra Pharmaceuticals (LON:DPH) Will Pay A Larger Dividend Than Last Year At UK£0.29

Dechra Pharmaceuticals PLC's (LON:DPH) dividend will be increasing to UK£0.29 on 19th of November. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

View our latest analysis for Dechra Pharmaceuticals

Dechra Pharmaceuticals' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

Over the next year, EPS is forecast to expand by 8.6%. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

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. Since 2011, the first annual payment was UK£0.10, compared to the most recent full-year payment of UK£0.41. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. 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.

Dechra Pharmaceuticals' Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Dechra Pharmaceuticals has grown earnings per share at 29% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Dechra Pharmaceuticals that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

If you decide to trade Dechra Pharmaceuticals, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.