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Highlights:
Diploma PLC will increase its dividend to £0.42, effective January 31st, 2024.
The dividend yield of 1.4% is lower than the industry average.
The company's earnings are forecast to cover future dividend payments, indicating sustainability.
Diploma PLC (LSE:DPLM) has announced an increase in its dividend to £0.42, set to be paid on January 31st, 2024. While this marks an increase from the previous year’s payment, the resulting dividend yield of 1.4% remains below the average for the industry. Despite this, the company’s earnings projections suggest that its future dividend payments are well-supported and sustainable.
Diploma’s recent dividend payout has been comfortably covered by its earnings, with a payout ratio that allows for reinvestment in the business. The company is projected to see a 55.1% increase in earnings per share (EPS) over the next year, signaling robust financial health. If the dividend continues along its current trajectory, the estimated payout ratio would be 45%, a level considered sustainable and within a comfortable range for maintaining long-term dividend payments.
While Diploma has a solid track record of paying dividends, the company has previously reduced its dividend at least once in the past decade. Since 2014, the dividend has grown at a compound annual growth rate (CAGR) of around 13%, though fluctuations in payments have been observed. The company’s consistent earnings growth, averaging 12% per year over the last five years, provides a buffer against past dividend cuts and supports the potential for continued dividend growth.
While the dividend may not be among the highest in the market, Diploma’s ability to grow earnings and maintain a reasonable payout ratio positions it as a stable option for those seeking consistent returns. However, as with any income-oriented stock, potential stakeholders should be aware of the company's past volatility in dividend payments, even though current financial trends are encouraging.
