Dechra Pharmaceuticals (LON:DPH) Will Pay A Larger Dividend Than Last Year At £0.3289

Dechra Pharmaceuticals PLC (LON:DPH) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of November to £0.3289. Even though the dividend went up, the yield is still quite low at only 1.4%.

See our latest analysis for Dechra Pharmaceuticals

Dechra Pharmaceuticals' Payment Has Solid Earnings Coverage

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 certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next year is set to see EPS grow by 80.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 56% which would be quite comfortable going to take the dividend forward.

Dechra Pharmaceuticals Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of £0.121 in 2012 to the most recent total annual payment of £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 Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. Dechra Pharmaceuticals has impressed us by growing EPS at 13% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Dechra Pharmaceuticals' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Dechra Pharmaceuticals' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Dechra Pharmaceuticals is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Dechra Pharmaceuticals that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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