DCC (LON:DCC) Is Increasing Its Dividend To £1.4
DCC plc (LON:DCC) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of July to £1.4. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.
We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 98% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 55%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
The next year is set to see EPS grow by 117.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 49% which would be quite comfortable going to take the dividend forward.
See our latest analysis for DCC
The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from £0.769 total annually to £2.06. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. DCC has seen earnings per share falling at 3.4% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Overall, we always like to see the dividend being raised, but we don't think DCC will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think DCC is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for DCC that investors should know about before committing capital to this stock. 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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