Spire's (NYSE:SR) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Spire Inc. (NYSE:SR) has announced that the dividend on 5th of January will be increased to $0.825, which will be 5.1% higher than last year's payment of $0.785 which covered the same period. This takes the annual payment to 3.6% of the current stock price, which is about average for the industry.

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Spire's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

The next year is set to see EPS grow by 38.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Spire

Spire Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $1.84 total annually to $3.14. This implies that the company grew its distributions at a yearly rate of about 5.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Spire has been growing its earnings per share at 25% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Spire is not retaining those earnings to reinvest in growth.

Our Thoughts On Spire's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Spire is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Spire (1 is potentially serious!) that you should be aware of before investing. Is Spire not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.