Gooch & Housego (LON:GHH) Is Increasing Its Dividend To UK£0.047
Gooch & Housego PLC's (LON:GHH) dividend will be increasing to UK£0.047 on 29th of July. Based on the announced payment, the dividend yield for the company will be 1.3%, which is fairly typical for the industry.
See our latest analysis for Gooch & Housego
Gooch & Housego's Earnings Easily Cover the Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Gooch & Housego was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
The next year is set to see EPS grow by 72.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.
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. Since 2012, the first annual payment was UK£0.06, compared to the most recent full-year payment of UK£0.15. This works out to be a compound annual growth rate (CAGR) of approximately 9.9% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Gooch & Housego might have put its house in order since then, but we remain cautious.
The Dividend Has Limited Growth Potential
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. Over the past five years, it looks as though Gooch & Housego's EPS has declined at around 11% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Gooch & Housego will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Gooch & Housego has been making. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Gooch & Housego that investors should take into consideration. 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.
