Dunelm Group's (LON:DNLM) Upcoming Dividend Will Be Larger Than Last Year's

Dunelm Group plc (LON:DNLM) will increase its dividend on the 8th of April to £0.515, which is 1.0% higher than last year's payment from the same period of £0.51. This will take the annual payment to 8.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Dunelm Group

Estimates Indicate Dunelm Group's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Dunelm Group'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.

Over the next year, EPS is forecast to expand by 12.0%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 101% over the next year.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of £0.20 in 2015 to the most recent total annual payment of £0.785. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Dunelm Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Dunelm Group's Dividend Growing

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 impressed us by growing EPS at 6.1% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Dunelm Group that investors should take into consideration. 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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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.