Shoe Zone plc (LON:SHOE) will pay a dividend of £0.025 on the 14th of August. This makes the dividend yield 9.7%, which will augment investor returns quite nicely.
Check out our latest analysis for Shoe Zone
Shoe Zone's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Shoe Zone's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 19.9% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 70%, which is comfortable for the company to continue in the future.
Shoe Zone's Dividend Has Lacked Consistency
Looking back, Shoe Zone's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was £0.036 in 2015, and the most recent fiscal year payment was £0.174. This means that it has been growing its distributions at 19% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Shoe Zone has grown earnings per share at 10% per year over the past five years. Shoe Zone definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Shoe Zone Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. Case in point: We've spotted 3 warning signs for Shoe Zone (of which 1 is a bit concerning!) you should know about. 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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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.
