The board of Shoe Zone plc (LON:SHOE) has announced that it will pay a dividend on the 16th of August, with investors receiving £0.025 per share. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.
View our latest analysis for Shoe Zone
Shoe Zone Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Shoe Zone's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
EPS is set to fall by 23.3% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 105%, which is definitely a bit high to be sustainable going forward.
Shoe Zone's Dividend Has Lacked Consistency
Looking back, Shoe Zone's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from £0.036 total annually to £0.088. This means that it has been growing its distributions at 12% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.0% per annum over the last five years, which admittedly is a bit slow. Growth of 4.0% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
In Summary
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. 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.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Shoe Zone has 2 warning signs (and 1 which is concerning) we think you should know about. Is Shoe Zone 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.
About AIM:SHOE
Outstanding track record with flawless balance sheet and pays a dividend.
