Lok'nStore Group (LON:LOK) Will Pay A Larger Dividend Than Last Year At £0.1225

The board of Lok'nStore Group Plc (LON:LOK) has announced that it will be paying its dividend of £0.1225 on the 6th of January, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.

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Lok'nStore Group Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Lok'nStore Group was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to fall by 65.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 133%, which could put the dividend in jeopardy if the company's earnings don't improve.

Lok'nStore Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was £0.05, compared to the most recent full-year payment of £0.173. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Lok'nStore Group has impressed us by growing EPS at 30% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Lok'nStore Group's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. For example, we've identified 3 warning signs for Lok'nStore Group (1 is potentially serious!) that you should be aware of before investing. Is Lok'nStore Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.