The board of Savills plc (LON:SVS) has announced that it will be paying its dividend of £0.066 on the 5th of October, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.4%.
View our latest analysis for Savills
Savills' Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Savills' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
EPS is set to fall by 8.1% 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.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from £0.135 total annually to £0.255. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Savills has seen EPS rising for the last five years, at 13% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Savills' prospects of growing its dividend payments in the future.
Savills Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Savills that investors need to be conscious of moving forward. Is Savills not quite the opportunity you were looking for? Why not check out our selection of top 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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