Lookers' (LON:LOOK) Dividend Will Be £0.02

Lookers plc's (LON:LOOK) investors are due to receive a payment of £0.02 per share on 16th of June. This means the annual payment is 4.6% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Lookers

Lookers' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Lookers' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 21.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 18%, which is comfortable for the company to continue in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.0235 in 2013 to the most recent total annual payment of £0.04. This works out to be a compound annual growth rate (CAGR) of approximately 5.5% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Lookers might have put its house in order since then, but we remain cautious.

Lookers Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Lookers has impressed us by growing EPS at 10.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Lookers' Dividend

Overall, we like to see the dividend staying consistent, and we think Lookers might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Lookers has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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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