Supreme (LON:SUP) Will Pay A Smaller Dividend Than Last Year

Supreme Plc's (LON:SUP) dividend is being reduced from last year's payment covering the same period to £0.022 on the 29th of September. This means that the dividend yield is 2.6%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Supreme

Supreme's Payment Has 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, prior to this announcement, Supreme's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 40.4% over the next year. If the dividend continues on this path, the payout ratio could be 10% by next year, which we think can be pretty sustainable going forward.

Supreme's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 2 years was £0.022 in 2021, and the most recent fiscal year payment was £0.03. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Supreme's earnings per share has basically not grown from where it was three years ago, which could erode the purchasing power of the dividend over time. If Supreme is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Even though the dividend was cut this year, we think Supreme has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Supreme that investors need to be conscious of moving forward. Is Supreme not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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