easyJet (LON:EZJ) Is Paying Out A Larger Dividend Than Last Year

easyJet plc's (LON:EZJ) dividend will be increasing from last year's payment of the same period to £0.121 on 21st of March. Based on this payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.

View our latest analysis for easyJet

easyJet's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, easyJet's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 37.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £0.454 in 2015 to the most recent total annual payment of £0.121. Dividend payments have fallen sharply, down 73% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's not great to see that easyJet's earnings per share has fallen at approximately 7.5% per year over the past 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.

Our Thoughts On easyJet's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think easyJet is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for easyJet that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.