Treatt plc (LON:TET) is reducing its dividend to £0.0535 on the 16th of Marchwhich is 2.7% less than last year's comparable payment of £0.055. This payment takes the dividend yield to 1.3%, which only provides a modest boost to overall returns.
View our latest analysis for Treatt
Treatt's Dividend Is Well Covered By Earnings
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Treatt's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share is forecast to rise by 29.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.
Treatt Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from £0.031 total annually to £0.0785. This means that it has been growing its distributions at 9.7% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
We Could See Treatt's Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Treatt has grown earnings per share at 6.1% per year over the past five years. Treatt definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Treatt is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Treatt that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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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