Dillard's' (NYSE:DDS) Shareholders Will Receive A Bigger Dividend Than Last Year

Dillard's, Inc. (NYSE:DDS) has announced that it will be increasing its periodic dividend on the 30th of October to $0.25, which will be 25% higher than last year's comparable payment amount of $0.20. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.

See our latest analysis for Dillard's

Dillard's' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Dillard'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.

EPS is set to fall by 44.7% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 66%, which is comfortable for the company to continue in the future.

Dillard's Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from $0.20 total annually to $15.80. This implies that the company grew its distributions at a yearly rate of about 55% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Dillard's has been growing its earnings per share at 41% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Dillard's Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Dillard's is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Dillard's (of which 1 can't be ignored!) you should know about. 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.