The board of LSL Property Services plc (LON:LSL) has announced that it will pay a dividend of £0.04 per share on the 7th of November. This means the dividend yield will be fairly typical at 4.0%.
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We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, LSL Property Services’ dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 121% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
The next year is set to see EPS grow by 121.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.
View our latest analysis for LSL Property Services
The company has a long dividend track record, but it doesn’t look great with cuts in the past. The dividend has gone from an annual total of £0.123 in 2015 to the most recent total annual payment of £0.114. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. 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.
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, LSL Property Services’ earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
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 LSL Property Services that investors need to be conscious of moving forward. 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.