The board of Steelcase Inc. (NYSE:SCS) has announced that it will pay a dividend of $0.10 per share on the 21st of April. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, Steelcase’s earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
The next year is set to see EPS grow by 22.5%. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for Steelcase
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.42 in 2015, and the most recent fiscal year payment was $0.40. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn’t what we are looking for.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Steelcase has seen earnings per share falling at 8.7% 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, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn’t been great. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we’ve picked out 1 warning sign for Steelcase that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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