The board of Travis Perkins plc (LON:TPK) has announced that it will pay a dividend on the 8th of November, with investors receiving £0.055 per share. This means that the annual payment is 1.2% of the current stock price, which is lower than what the rest of the industry is paying.
View our latest analysis for Travis Perkins
Estimates Indicate Travis Perkins’ Dividend Coverage Likely To Improve
Even a low dividend yield can be attractive if it is sustained for years on end. While Travis Perkins is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, so there isn’t too much pressure on the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.347 in 2014, and the most recent fiscal year payment was £0.11. This works out to a decline of approximately 68% over that time. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.
Travis Perkins Could Grow Its Dividend
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. We are encouraged to see that Travis Perkins has grown earnings per share at 5.9% per year over the past five years. It’s not an ideal situation that the company isn’t turning a profit but the growth recently is a positive sign. All is not lost, but the future of the dividend definitely rests upon the company’s ability to become profitable soon.
Our Thoughts On Travis Perkins’ Dividend
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 16 Travis Perkins analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Travis Perkins 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.