Steelcase (NYSE: SCS) increases dividend to US $ 0.14
Steelcase Inc. (NYSE: SCS) has announced that it will increase its dividend on July 20 to $ 0.14. This will bring the annual payout to 2.9% of the share price, which is higher than what most companies in the industry pay.
Check out our latest analysis for Steelcase
Steelcase pays more than it earns
We like to see robust dividend yields, but it doesn’t matter if the payout isn’t sustainable. Before this announcement, the company paid 180% of what it earned. Without increased earnings and cash flow, it would be difficult for the company to continue paying the dividend at this level.
The next 12 months are expected to see EPS increase by 35.2%. If the dividend continues at its recent price, the 12 month payout rate could be 151%, which is a bit high and could start to put pressure on the balance sheet.
While the company has been paying a dividend for a long time, it has reduced the dividend at least once in the past 10 years. Since 2011, the first annual payment was US $ 0.16, compared to the most recent annual payment of US $ 0.58. This implies that the company has increased its distributions at an annual rate of approximately 14% over this period. Dividends have grown rapidly during this time, but with reductions in the past, we are not sure this stock will be a reliable source of income in the future.
The potential for dividend growth is fragile
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. Steelcase earnings per share have declined 31% per year over the past five years. A sharp drop in earnings per share isn’t terrible from a dividend standpoint. Even conservative payout ratios can be put under pressure if earnings fall enough. Over the next year, however, earnings are actually expected to rise, but we will remain cautious until a history of earnings growth can be established.
We’re not big fans of the Steelcase dividend
In summary, investors will like to receive a higher dividend, but we wonder if it can be sustained over the long term. The company doesn’t earn enough to pay as much as it does, and the other factors don’t look particularly promising either. Overall, the dividend is not reliable enough to make it a good income security.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. To this end, Steelcase has 5 warning signs (and 1 that shouldn’t be ignored) we think you should be aware of. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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