Solid State plc's (LON:SOLI) periodic dividend will be increasing on the 17th of February to £0.065, with investors receiving 4.0% more than last year's £0.0625. The payment will take the dividend yield to 1.5%, which is in line with the average for the industry.
Solid State's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Solid State's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
The next year is set to see EPS grow by 6.9%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.
Solid State Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.0725 in 2012, and the most recent fiscal year payment was £0.195. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. Solid State has impressed us by growing EPS at 12% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
We should note that Solid State has issued stock equal to 32% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On Solid State's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Solid State's payments are rock solid. While Solid State is earning enough to cover the payments, the cash flows are lacking. We don't think Solid State 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 Solid State that investors should know about before committing capital to this stock. Is Solid State 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.
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