La-Z-Boy's (NYSE:LZB) Upcoming Dividend Will Be Larger Than Last Year's

La-Z-Boy Incorporated's (NYSE:LZB) periodic dividend will be increasing on the 20th of December to $0.1815, with investors receiving 10.0% more than last year's $0.165. Based on this payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.

Check out the opportunities and risks within the US Consumer Durables industry.

La-Z-Boy's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, La-Z-Boy's dividend was only 17% of earnings, however it was paying out 263% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 26.9%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 25%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from $0.16 total annually to $0.66. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. La-Z-Boy has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. La-Z-Boy has seen EPS rising for the last five years, at 18% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On La-Z-Boy's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While La-Z-Boy is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for La-Z-Boy (2 are a bit unpleasant!) 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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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.