Dunelm Group plc (LON:DNLM) will pay a dividend of £0.275 on the 26th of November. This takes the dividend yield to 6.4%, which shareholders will be pleased with.
Check out our latest analysis for Dunelm Group
Estimates Indicate Dunelm Group's Could Struggle to Maintain Dividend Payments In The Future
A big dividend yield for a few years doesn't mean much if it can't be sustained. Dunelm Group was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Over the next year, EPS is forecast to expand by 15.2%. If the dividend continues on its recent course, the payout ratio in 12 months could be 98%, which is a bit high and could start applying pressure to the balance sheet.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was £0.20, compared to the most recent full-year payment of £0.785. This means that it has been growing its distributions at 15% 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.
Dunelm Group Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Dunelm Group has grown earnings per share at 8.3% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Our Thoughts On Dunelm Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Dunelm Group will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Dunelm Group that investors should take into consideration. Is Dunelm Group not quite the opportunity you were looking for? Why not check out our selection of top 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.
About LSE:DNLM
Undervalued established dividend payer.
