The board of Spectrum Brands Holdings, Inc. (NYSE:SPB) has announced that it will pay a dividend of $0.42 per share on the 28th of September. This payment means that the dividend yield will be 2.4%, which is around the industry average.
Spectrum Brands Holdings' Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Despite not being profitable, Spectrum Brands Holdings is paying out most of its free cash flow as a dividend. Paying a dividend while unprofitable is generally considered an aggressive policy, and with limited funds retained for reinvestment, growth may be slow.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, so there isn't too much pressure on the dividend.
Spectrum Brands Holdings' Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. Since 2018, the annual payment back then was $10.42, compared to the most recent full-year payment of $1.68. The dividend has fallen 84% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. However, Spectrum Brands Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings growth isn't particularly strong, and if the company isn't able to become profitable fairly soon, the dividend could come under pressure.
Spectrum Brands Holdings' Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Spectrum Brands Holdings is a great stock to add to your portfolio if income is your focus.
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 1 warning sign for Spectrum Brands Holdings that you should be aware of before investing. 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. 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.
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