Spur Corporation Ltd (JSE:SUR) will increase its dividend from last year's comparable payment on the 18th of September to ZAR1.10. The payment will take the dividend yield to 7.8%, which is in line with the average for the industry.
Check out our latest analysis for Spur
Spur's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Spur's dividend made up quite a large proportion of earnings but only 64% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS could expand by 10.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which is in the range that makes us comfortable with the sustainability of the dividend.
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 dividend has gone from an annual total of ZAR1.10 in 2013 to the most recent total annual payment of ZAR2.20. This means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Spur has impressed us by growing EPS at 10% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
Spur Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Spur is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Spur that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About JSE:SUR
Spur
Operates as a restaurant franchisor in South Africa and internationally.
Excellent balance sheet average dividend payer.
