Signet Jewelers (NYSE:SIG) Will Pay A Larger Dividend Than Last Year At $0.32

The board of Signet Jewelers Limited (NYSE:SIG) has announced that the dividend on 23rd of May will be increased to $0.32, which will be 10% higher than last year's payment of $0.29 which covered the same period. The payment will take the dividend yield to 2.0%, which is in line with the average for the industry.

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Signet Jewelers' Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Signet Jewelers' Could Struggle to Maintain Dividend Payments In The Future

Signet Jewelers' Future Dividends May Potentially Be At Risk

We aren't too impressed by dividend yields unless they can be sustained over time. While Signet Jewelers is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into 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.

EPS is forecast to rise very quickly over the next 12 months. Assuming the dividend continues along recent trends, we could see the payout ratio reach 115%, which is on the unsustainable side.

Check out our latest analysis for Signet Jewelers

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was $0.72, compared to the most recent full-year payment of $1.16. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Company Could Face Some Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Signet Jewelers has grown earnings per share at 27% per year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.

Our Thoughts On Signet Jewelers' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Signet Jewelers' payments are rock solid. 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 be a touch cautious of relying on this stock primarily for the dividend income.

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. For instance, we've picked out 1 warning sign for Signet Jewelers that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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