Dunelm Group (LON:DNLM) Is Due To Pay A Dividend Of £0.275

The board of Dunelm Group plc (LON:DNLM) has announced that it will pay a dividend of £0.275 per share on the 26th of November. This will take the dividend yield to an attractive 6.5%, providing a nice boost to shareholder returns.

See our latest analysis for Dunelm Group

Dunelm Group's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by Dunelm Group's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Earnings per share is forecast to rise by 16.2% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 97% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.20 in 2014, and the most recent fiscal year payment was £0.785. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dunelm Group Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Dunelm Group has seen EPS rising for the last five years, at 8.3% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Dunelm Group's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Dunelm Group has been making. We don't think Dunelm Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Dunelm Group that investors need to be conscious of moving forward. 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.