Caledonia Investments Plc's (LON:CLDN) dividend will be increasing from last year's payment of the same period to ￡0.5147 on 1st of August. Even though the dividend went up, the yield is still quite low at only 2.0%.

See our latest analysis for Caledonia Investments

Caledonia Investments' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, Caledonia Investments' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 0.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

Caledonia Investments Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ￡0.491 in 2014, and the most recent fiscal year payment was ￡0.704. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that Caledonia Investments' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Caledonia Investments could always pay out a higher proportion of earnings to increase shareholder returns.

We Really Like Caledonia Investments' Dividend

Overall, a dividend increase is always good, and we think that Caledonia Investments is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Caledonia Investments stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.