Strix Group (LON:KETL) Is Paying Out A Larger Dividend Than Last Year

Strix Group Plc (LON:KETL) has announced that it will be increasing its dividend on the 10th of June to UK£0.056, which will be 6.7% higher than last year. This will take the dividend yield from 4.3% to 4.3%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Strix Group's stock price has reduced by 36% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for Strix Group

Strix Group's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Strix Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 321% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 50.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Strix Group's Dividend Has Lacked Consistency

It's comforting to see that Strix Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from UK£0.07 to UK£0.084. This means that it has been growing its distributions at 3.6% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Strix Group's earnings per share has fallen at approximately 3.1% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Strix Group will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Strix Group has 5 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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