The board of Spectrum Brands Holdings, Inc. (NYSE:SPB) has announced that it will pay a dividend on the 9th of June, with investors receiving US$0.42 per share. This payment means that the dividend yield will be 2.0%, which is around the industry average.
Spectrum Brands Holdings' Distributions May Be Difficult To Sustain
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Spectrum Brands Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Over the next year, EPS could expand by 9.3% if recent trends continue. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.
Spectrum Brands Holdings' Dividend Has Lacked Consistency
Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The first annual payment during the last 4 years was US$10.42 in 2018, and the most recent fiscal year payment was US$1.68. Dividend payments have fallen sharply, down 84% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Spectrum Brands Holdings Could Grow Its Dividend
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see Spectrum Brands Holdings has been growing its earnings per share at 9.3% a year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.
Our Thoughts On Spectrum Brands Holdings' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Spectrum Brands Holdings that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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.