Fletcher King's (LON:FLK) Shareholders Will Receive A Bigger Dividend Than Last Year

Fletcher King Plc (LON:FLK) will increase its dividend from last year's comparable payment on the 25th of October to £0.0225. Based on this payment, the dividend yield for the company will be 4.5%, which is fairly typical for the industry.

See our latest analysis for Fletcher King

Fletcher King's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Fletcher King's dividend made up quite a large proportion of earnings but only 30% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS could expand by 2.0% if recent trends continue. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was £0.015, compared to the most recent full-year payment of £0.0225. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Fletcher King's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Slow growth and a high payout ratio could mean that Fletcher King has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Fletcher King's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Fletcher King (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.