Savills' (LON:SVS) Upcoming Dividend Will Be Larger Than Last Year's

Savills plc (LON:SVS) will increase its dividend on the 22nd of May to £0.231, which is 45% higher than last year's payment from the same period of £0.159. Although the dividend is now higher, the yield is only 2.5%, which is below the industry average.

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Savills' Payment Could Potentially Have 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. However, Savills' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 146.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Savills

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from £0.193 total annually to £0.228. This implies that the company grew its distributions at a yearly rate of about 1.7% over that duration. 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 Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Savills' earnings per share has shrunk at approximately 8.2% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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.

Our Thoughts On Savills' Dividend

Overall, we always like to see the dividend being raised, but we don't think Savills will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company . Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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