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Reece's (ASX:REH) Upcoming Dividend Will Be Larger Than Last Year's

·3 min read

Reece Limited's (ASX:REH) dividend will be increasing from last year's payment of the same period to A$0.15 on 26th of October. Even though the dividend went up, the yield is still quite low at only 1.5%.

Check out our latest analysis for Reece

Reece's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Reece was paying only paying out a fraction of earnings, but the payment was a massive 685% of cash flows. 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 is forecast to rise by 14.3% over the next year. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.


Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was A$0.122 in 2012, and the most recent fiscal year payment was A$0.225. This implies that the company grew its distributions at a yearly rate of about 6.3% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Reece's Dividend Growing

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. It's encouraging to see that Reece has been growing its earnings per share at 7.4% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Reece's prospects of growing its dividend payments in the future.

Our Thoughts On Reece's Dividend

Overall, we always like to see the dividend being raised, but we don't think Reece will make a great income stock. While Reece is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 Reece analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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.

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