The board of Spectrum Brands Holdings, Inc. (NYSE:SPB) has announced that it will pay a dividend of $0.42 per share on the 18th of June. The dividend yield is 1.8% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Spectrum Brands Holdings

Spectrum Brands Holdings' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Even though Spectrum Brands Holdings is not generating a profit, it is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 12%, which makes us pretty comfortable with the sustainability of the dividend.

Spectrum Brands Holdings' Dividend Has Lacked Consistency

It's comforting to see that Spectrum Brands Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. 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 Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Spectrum Brands Holdings' earnings per share has shrunk at 23% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Spectrum Brands Holdings' Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Spectrum Brands Holdings that investors need to be conscious of moving forward. 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.