The board of Spectrum Brands Holdings, Inc. (NYSE:SPB) has announced that it will pay a dividend on the 19th of September, with investors receiving $0.42 per share. This means that the annual payment will be 2.2% of the current stock price, which is in line with the average for the industry.
Spectrum Brands Holdings' Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Even though Spectrum Brands Holdings isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend extends its recent trend, estimates say the dividend could reach 8.1%, which we would be comfortable to see continuing.
Spectrum Brands Holdings' Dividend Has Lacked Consistency
Spectrum Brands Holdings has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of $10.42 in 2018 to the most recent total annual payment of $1.68. Dividend payments have fallen sharply, down 84% over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Spectrum Brands Holdings' earnings per share has shrunk at 51% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 probably look elsewhere for an income investment.
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. For example, we've picked out 1 warning sign for Spectrum Brands Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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