Computacenter (LON:CCC) Is Increasing Its Dividend To UK£0.49

Computacenter plc (LON:CCC) will increase its dividend on the 8th of July to UK£0.49. This takes the annual payment to 2.5% of the current stock price, which is about average for the industry.

View our latest analysis for Computacenter

Computacenter's Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Computacenter was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 2.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 48%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was UK£0.19 in 2012, and the most recent fiscal year payment was UK£0.66. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Computacenter has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Computacenter has been growing its earnings per share at 25% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Computacenter could prove to be a strong dividend payer.

We Really Like Computacenter's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Computacenter that investors should know about before committing capital to this stock. Is Computacenter not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.