How Safe Is The Whitbread Dividend Payment?
Jack Brumby | May 05, 2019 11:35
Whitbread (LON:WTB) is a large cap hotel and bar operator that runs the Premier Inn brand of budget hotels.
For the fiscal year ended 28 February 2019, Whitbread plc revenues increased 2% to £2.05bn but net income fell 39% to £210.6m. Despite this mixed financial performance, its recent multi-billion pound sale of coffee brand Costa to Coca-Cola (NYSE:KO) shows its value as an incubator of top quality businesses. In fact, the return of surplus cash from this bumper sale to faithful shareholders has driven a strong share price performance over the past year:
Whitbread pays out an attractive rolling dividend yield of 2.19%. I'd like to know how safe this dividend is. Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times suggests we need to look a little closer.
h2 Computing Whitbread's dividend cover ratio/h2Poor dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It could also mean that the company is forgoing profitable investment opportunities that could generate future earnings growth. With that in mind, let’s take a look at Whitbread dividend cover.
We can get all the information we need to see if Whitbread has an adequate level of dividend cover from the group’s StockReport. The group’s FY19 EPS was 114.6p and its FY19 dividend per share was 100p.
Divide the former by the latter and we get a trailing twelve-month dividend cover for Whitbread of 1.15. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety. Taking the group's normalised EPS figure of 231p, however, gives a much more encouraging normalised dividend cover of 2.32.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.
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