Mr Price Group Limited( JSE:MRP ) has announced that it will pay a dividend of ZAR3.23 per share on the 15th of December. Based on this payment, the dividend yield for the company will be 4.2%, which is fairly typical for the industry.
Mr Price Group's Payment Could Potentially Have Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend was quite easily covered by Mr Price Group's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to expand by 39.3%. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for Mr Price Group
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ZAR5.80 in 2015 to the most recent total annual payment of ZAR8.97. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
We Could See Mr Price Group's Dividend Growing
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Mr Price Group has impressed us by growing EPS at 10.0% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
We Really Like Mr Price Group's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Mr Price Group 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.
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