Severn Trent convinces with stable dividends but remains under observation

Severn Trent has announced a dividend of 0.4868 pounds per share to be distributed on January 10, representing a dividend yield of 4.2%. This news will surely please investors who appreciate the consistency of such payments. However, the exciting question remains how sustainable this dividend actually is. It is noteworthy that last year's distribution exceeded the earnings achieved, which is a warning signal regarding the sustainability of the dividend payments. Severn Trent plans to increase earnings per share by 121.8% in the coming year, which could help the company maintain the dividend frequency, albeit achieved with an expected payout ratio of 73%. This figure could certainly provide investors with a sense of security, even if the current level remains high. Since 2014, the annual dividend has increased from 0.777 pounds to 1.17 pounds, an annual growth of 4.2%. This steady, albeit moderate, growth rate could offer stability, even though earnings per share have declined by about 9.4% per year over the past five years. Although an increase in earnings is expected next year, caution is advised until a consistent growth trend is apparent. Overall, Severn Trent's consistent payout policy leaves a positive impression, yet the high payout ratio remains a blemish. Despite the stability of the payments, Severn Trent does not currently seem to be an ideal choice for dividend investment. Investors should continue to incorporate a comprehensive view of the company into their decision-making and not just focus on dividends.