Crest Nicholson Holdings plc (LON:CRST) has announced that it will be increasing its dividend on the 13th of October to UK£0.055. Even though the dividend went up, the yield is still quite low at only 5.8%.
Crest Nicholson Holdings Might Find It Hard To Continue The Dividend
Even a low dividend yield can be attractive if it is sustained for years on end. Crest Nicholson Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Recent, EPS has fallen by 40.1%, so this could continue over the next year. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.
Crest Nicholson Holdings' Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The dividend has gone from UK£0.065 in 2014 to the most recent annual payment of UK£0.15. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Crest Nicholson Holdings' earnings per share has shrunk at 40% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Crest Nicholson Holdings will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Crest Nicholson Holdings that you should be aware of before investing. Is Crest Nicholson Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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