Redde Northgate (LON:REDD) Has Announced That It Will Be Increasing Its Dividend To UK£0.15
The board of Redde Northgate plc (LON:REDD) has announced that it will be increasing its dividend on the 30th of September to UK£0.15. This makes the dividend yield 6.1%, which is above the industry average.
See our latest analysis for Redde Northgate
Redde Northgate's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Redde Northgate's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to rise by 0.05% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, 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 first annual payment during the last 10 years was UK£0.03 in 2012, and the most recent fiscal year payment was UK£0.21. This means that it has been growing its distributions at 21% per annum over that time. Redde Northgate 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.
Redde Northgate 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. Unfortunately, Redde Northgate's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Redde Northgate (of which 1 shouldn't be ignored!) 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
