Richelieu Hardware's (TSE:RCH) Upcoming Dividend Will Be Larger Than Last Year's

Simply Wall St
·3 min read

Richelieu Hardware Ltd.'s (TSE:RCH) dividend will be increasing from last year's payment of the same period to CA$0.15 on 16th of February. Even though the dividend went up, the yield is still quite low at only 1.6%.

Check out our latest analysis for Richelieu Hardware

Richelieu Hardware's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Richelieu Hardware's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to fall by 27.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 27%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was CA$0.16, compared to the most recent full-year payment of CA$0.60. This means that it has been growing its distributions at 14% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Richelieu Hardware has grown earnings per share at 21% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Richelieu Hardware's Dividend

Overall, we always like to see the dividend being raised, but we don't think Richelieu Hardware will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Richelieu Hardware that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here