Smiths News' (LON:SNWS) Dividend Will Be £0.014

The board of Smiths News plc (LON:SNWS) has announced that it will pay a dividend of £0.014 per share on the 6th of July. The dividend yield will be 8.5% based on this payment which is still above the industry average.

See our latest analysis for Smiths News

Smiths News Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Smiths News was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 80.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 142%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.086, compared to the most recent full-year payment of £0.0415. This works out to be a decline of approximately 7.0% per year over that time. 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's Growth Prospects Are Limited

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been crawling upwards at 4.0% per year. While EPS growth is quite low, Smiths News has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we think Smiths News is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Smiths News (of which 1 doesn't sit too well with us!) you should know about. Is Smiths News not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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