Severn Trent (LON:SVT) Will Pay A Dividend Of £0.504

The board of Severn Trent PLC (LON:SVT) has announced that it will pay a dividend of £0.504 per share on the 12th of January. Based on this payment, the dividend yield for the company will be 4.4%, which is fairly typical for the industry.

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Severn Trent's Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the dividend made up 117% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Looking forward, earnings per share is forecast to rise by 97.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Check out our latest analysis for Severn Trent

Severn Trent Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was £0.849 in 2015, and the most recent fiscal year payment was £1.22. This means that it has been growing its distributions at 3.7% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Severn Trent's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Severn Trent has impressed us by growing EPS at 17% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Severn Trent's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Severn Trent is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 picked out 2 warning signs for Severn Trent that investors should know about before committing capital to this stock. Is Severn Trent 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.