Clarkson (LON:CKN) Is Paying Out A Larger Dividend Than Last Year

Clarkson PLC (LON:CKN) will increase its dividend from last year's comparable payment on the 26th of May to £0.64. Although the dividend is now higher, the yield is only 3.1%, which is below the industry average.

View our latest analysis for Clarkson

Clarkson's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Clarkson's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 14.8% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 45%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 £0.50, compared to the most recent full-year payment of £0.93. This works out to be a compound annual growth rate (CAGR) of approximately 6.4% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Clarkson has grown earnings per share at 19% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Clarkson's Dividend

Overall, a dividend increase is always good, and we think that Clarkson is a strong income stock thanks to its track record and growing earnings. 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 of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 identified 2 warning signs for Clarkson (1 makes us a bit uncomfortable!) 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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