Strix Group (LON:KETL) Has Announced That It Will Be Increasing Its Dividend To UK£0.056

The board of Strix Group Plc (LON:KETL) has announced that the dividend on 10th of June will be increased to UK£0.056, which will be 6.7% higher than last year. This will take the annual payment from 3.9% to 3.9% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Strix Group

Strix Group's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Strix Group was paying out quite a large proportion of both earnings and cash flow, with the dividend being 322% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 49.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 64% which would be quite comfortable going to take the dividend forward.

Strix Group's Dividend Has Lacked Consistency

Looking back, Strix Group's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 5 years was UK£0.07 in 2017, and the most recent fiscal year payment was UK£0.084. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Strix Group has seen earnings per share falling at 3.2% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Strix Group's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. 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 example, we've identified 4 warning signs for Strix Group (1 is significant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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