Dr. Martens plc's (LON:DOCS) investors are due to receive a payment of £0.0156 per share on 2nd of February. This makes the dividend yield 6.1%, which will augment investor returns quite nicely.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Dr. Martens' stock price has reduced by 39% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for Dr. Martens

Dr. Martens' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Dr. Martens is earning enough to cover the payment, but then it makes up 207% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 23.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range. historic-dividend

Dr. Martens Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The annual payment during the last 2 years was £0.0244 in 2021, and the most recent fiscal year payment was £0.0584. This implies that the company grew its distributions at a yearly rate of about 55% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Dr. Martens has been growing its earnings per share at 44% a year over the past five years. Dr. Martens is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.



Our Thoughts On Dr. Martens' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Dr. Martens' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 4 warning signs for Dr. Martens that investors should know about before committing capital to this stock. 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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