Halfords Group (LON:HFD) Has Announced That It Will Be Increasing Its Dividend To £0.058

Halfords Group plc's (LON:HFD) dividend will be increasing from last year's payment of the same period to £0.058 on 12th of September. This will take the annual payment to 5.8% of the stock price, which is above what most companies in the industry pay.

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Halfords Group's Long-term Dividend Outlook appears Promising

If the payments aren't sustainable, a high yield for a few years won't matter that much. Halfords Group is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 15%, so there isn't too much pressure on the dividend.

View our latest analysis for Halfords Group

Halfords Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.17 in 2016 to the most recent total annual payment of £0.088. The dividend has shrunk at around 7.1% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Halfords Group's EPS has declined at around 20% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Halfords Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Halfords Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Halfords Group that investors should know about before committing capital to this stock. Is Halfords Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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