Dis-Chem Pharmacies (JSE:DCP) Is Paying Out A Larger Dividend Than Last Year

Dis-Chem Pharmacies Limited (JSE:DCP) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of November to ZAR0.2942. The payment will take the dividend yield to 1.7%, which is in line with the average for the industry.

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Dis-Chem Pharmacies' Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. But before making this announcement, Dis-Chem Pharmacies' earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Over the next year, EPS is forecast to expand by 43.2%. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Dis-Chem Pharmacies

Dis-Chem Pharmacies' Dividend Has Lacked Consistency

Dis-Chem Pharmacies has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was ZAR0.147 in 2017, and the most recent fiscal year payment was ZAR0.588. This means that it has been growing its distributions at 19% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. Dis-Chem Pharmacies has seen EPS rising for the last five years, at 14% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Dis-Chem Pharmacies' Dividend

Overall, we always like to see the dividend being raised, but we don't think Dis-Chem Pharmacies will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Dis-Chem Pharmacies has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 7 analysts we track are forecasting for Dis-Chem Pharmacies for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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