Crookes Brothers' (JSE:CKS) Dividend Will Be Reduced To ZAR1.50

Crookes Brothers Limited (JSE:CKS) has announced that on 11th of August, it will be paying a dividend ofZAR1.50, which a reduction from last year's comparable dividend. However, the dividend yield of 5.3% still remains in a typical range for the industry.

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Crookes Brothers' Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Crookes Brothers was paying a whopping 117% as a dividend, but this only made up 34% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 51.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Crookes Brothers

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. There hasn't been much of a change in the dividend over the last 10 years. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Crookes Brothers has grown earnings per share at 51% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Crookes Brothers has 4 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.