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 annual payment is 2.4% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Supreme

Supreme's Earnings Easily Cover The Distributions

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, Supreme's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 40.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 10% by next year, which is in a pretty sustainable range.

Supreme's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2021, the dividend has gone from £0.022 total annually to £0.03. This means that it has been growing its distributions at 17% per annum over that time. Supreme has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Supreme May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. 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. While EPS growth is quite low, Supreme has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Supreme's Dividend

Overall, we think that Supreme could make a reasonable income stock, even though it did cut the dividend this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Supreme that investors should know about before committing capital to this stock. 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.