Solid State (LON:SOLI) Is Increasing Its Dividend To £0.065

The board of Solid State plc (LON:SOLI) has announced that the dividend on 17th of February will be increased to £0.065, which will be 4.0% higher than last year's payment of £0.0625 which covered the same period. The payment will take the dividend yield to 1.4%, which is in line with the average for the industry.

View our latest analysis for Solid State

Solid State's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Solid State was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 9.4%. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

Solid State Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from £0.0725 total annually to £0.198. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Solid State has seen EPS rising for the last five years, at 12% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

An additional note is that the company has been raising capital by issuing stock equal to 32% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Solid State is earning enough to cover the payments, the cash flows are lacking. We don't think Solid State is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Solid State that investors should take into consideration. Is Solid State 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.