Halfords Group (LON:HFD) Is Increasing Its Dividend To £0.07

Halfords Group plc's (LON:HFD) dividend will be increasing from last year's payment of the same period to £0.07 on 15th of September. This makes the dividend yield 4.6%, which is above the industry average.

See our latest analysis for Halfords Group

Halfords Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Halfords Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 77.1%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

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. Since 2013, the dividend has gone from £0.171 total annually to £0.10. Doing the maths, this is a decline of about 5.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Halfords Group's earnings per share has shrunk at 11% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Halfords Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Halfords Group will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Halfords Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Halfords Group that you should be aware of before investing. 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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