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Royal Mail plc’s (LON:RMG) dividend will be increasing from last year’s payment of the same period to £0.133 on 6th of September. This makes the dividend yield 9.8%, which is above the industry average.
View our latest analysis for Royal Mail
Royal Mail’s Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Before making this announcement, Royal Mail was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 25.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 72%, which is comfortable for the company to continue in the future.
Royal Mail’s Dividend Has Lacked Consistency
It’s comforting to see that Royal Mail has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 8 years was £0.133 in 2014, and the most recent fiscal year payment was £0.266. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we’re not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. We are encouraged to see that Royal Mail has grown earnings per share at 19% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Royal Mail Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company’s distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won’t be a problem if this doesn’t become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we’ve come across 2 warning signs for Royal Mail you should be aware of, and 1 of them is significant. 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.
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