Halfords Group's (LON:HFD) Dividend Will Be Increased To £0.058

The board of Halfords Group plc (LON:HFD) has announced that it will be paying its dividend of £0.058 on the 12th of September, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 6.0%, providing a nice boost to shareholder returns.

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Estimates Indicate Halfords Group's Dividend Coverage Likely To Improve

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. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Analysts expect a massive rise in earnings per share in the next year. If the dividend extends its recent trend, estimates say the dividend could reach 15%, which we would be comfortable to see continuing.

Check out our latest analysis for Halfords Group

Halfords Group's Dividend Has Lacked Consistency

Halfords Group has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 9 years was £0.17 in 2016, and the most recent fiscal year payment was £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.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Halfords Group's EPS has declined at around 20% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Halfords Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Halfords Group's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Halfords Group that investors should take into consideration. 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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