Reunert's (JSE:RLO) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Reunert Limited (JSE:RLO) has announced that it will be paying its dividend of ZAR2.49 on the 29th of January, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 5.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for Reunert

Reunert's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Reunert's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 4.3% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 59%, which is definitely feasible to continue.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ZAR3.70 in 2013, and the most recent fiscal year payment was ZAR3.32. The dividend has shrunk at around 1.1% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Reunert May Find It Hard To Grow The Dividend

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. In the last five years, Reunert's earnings per share has shrunk at approximately 4.3% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Reunert that investors should know about before committing capital to this stock. Is Reunert 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.