DFS Furniture (LON:DFS) Is Reducing Its Dividend To £0.037

DFS Furniture plc's (LON:DFS) dividend is being reduced from last year's payment covering the same period to £0.037 on the 29th of December. The yield is still above the industry average at 5.2%.

View 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 quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 22.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 73% 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. This suggests that the dividend might not be the most reliable. Since 2014, the annual payment back then was £0.062, compared to the most recent full-year payment of £0.074. This means that it has been growing its distributions at 2.2% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that DFS Furniture's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On DFS Furniture's Dividend

Even though the dividend was cut this year, we think DFS Furniture has the ability to make consistent payments in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. 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. Taking the debate a bit further, we've identified 2 warning signs for DFS Furniture that investors need to be conscious of moving forward. Is DFS Furniture not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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