FW Thorpe Plc (LON:TFW) has announced that it will be increasing its dividend on the 25th of November to UK£0.065, which will be 55% higher than last year. This will take the annual payment from 1.4% to 1.9% of the stock price, which is above what most companies in the industry pay.
FW Thorpe's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, FW Thorpe's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share could rise by 3.8% 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 62% by next year, which is in a pretty sustainable range.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from UK£0.018 to UK£0.058. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. FW Thorpe has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
FW Thorpe May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 3.8% a year for the past five years, which isn't massive but still better than seeing them shrink. FW Thorpe is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On FW Thorpe's Dividend
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. See if management have their own wealth at stake, by checking insider shareholdings in FW Thorpe stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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.
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