Stock Analysis

Dunelm Group (LON:DNLM) Is Paying Out A Larger Dividend Than Last Year

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LSE:DNLM
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Dunelm Group plc (LON:DNLM) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of December to £0.26. This will take the dividend yield to an attractive 5.5%, providing a nice boost to shareholder returns.

View our latest analysis for Dunelm Group

Dunelm Group Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Dunelm Group was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 12.4%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 108%, which is definitely a bit high to be sustainable going forward.

historic-dividend
LSE:DNLM Historic Dividend October 1st 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was £0.115, compared to the most recent full-year payment of £0.40. This means that it has been growing its distributions at 13% per annum over that time. 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 Looks Likely To Grow

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. Dunelm Group has seen EPS rising for the last five years, at 19% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Dunelm Group's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Dunelm Group (1 is concerning!) that you should be aware of before investing. 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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About LSE:DNLM

Dunelm Group

Dunelm Group plc retails homewares in the United Kingdom.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth1
Past Performance6
Financial Health6
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Outstanding track record with flawless balance sheet and pays a dividend.