TClarke (LON:CTO) Is Increasing Its Dividend To £0.0138
The board of TClarke plc (LON:CTO) has announced that it will be increasing its dividend by 10.0% on the 29th of September to £0.0138, up from last year's comparable payment of £0.0125. This makes the dividend yield about the same as the industry average at 4.2%.
Check out our latest analysis for TClarke
TClarke's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. But before making this announcement, TClarke's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
Over the next year, EPS is forecast to expand by 50.4%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.
TClarke Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from £0.03 total annually to £0.0548. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. In the last five years, TClarke's earnings per share has shrunk at approximately 3.3% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
We should note that TClarke has issued stock equal to 20% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On TClarke's Dividend
Overall, we always like to see the dividend being raised, but we don't think TClarke will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.
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. For example, we've picked out 2 warning signs for TClarke 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.
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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.
