DFS Furniture (LON:DFS) Is Reducing Its Dividend To £0.03

DFS Furniture plc's (LON:DFS) dividend is being reduced by 19% to £0.03 per share on 29th of December, in comparison to last year's comparable payment of £0.037. However, the dividend yield of 4.0% is still a decent boost to shareholder returns.

See our latest analysis for DFS Furniture

DFS Furniture's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, DFS Furniture'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.

The next year is set to see EPS grow by 79.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

DFS Furniture's Dividend Has Lacked Consistency

Looking back, DFS Furniture's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was £0.062 in 2015, and the most recent fiscal year payment was £0.045. Doing the maths, this is a decline of about 3.9% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

DFS Furniture May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings has been rising at 2.4% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 2.4% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, we think that DFS Furniture could make a reasonable income stock, even though it did cut the dividend this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for DFS Furniture (of which 1 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.