Signet Jewelers (NYSE:SIG) Has Announced That It Will Be Increasing Its Dividend To $0.29

Signet Jewelers Limited (NYSE:SIG) will increase its dividend from last year's comparable payment on the 24th of May to $0.29. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

View our latest analysis for Signet Jewelers

Signet Jewelers' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Signet Jewelers was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 31.0% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 8.2%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $0.60 total annually to $1.16. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Signet Jewelers has grown earnings per share at 58% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Signet Jewelers' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Signet Jewelers that investors should know about before committing capital to this stock. Is Signet Jewelers not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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