Dillard's, Inc. (NYSE:DDS) has announced that it will pay a dividend of $0.25 per share on the 5th of May. Based on this payment, the dividend yield on the company's stock will be 6.7%, which is an attractive boost to shareholder returns.

View our latest analysis for Dillard's

Dillard's' Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Dillard's' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 25.3%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 107%, which could put the dividend under pressure if earnings don't start to improve.

Dillard's Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.24 in 2015, and the most recent fiscal year payment was $26.00. This implies that the company grew its distributions at a yearly rate of about 60% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Dillard's has impressed us by growing EPS at 53% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Dillard's Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Dillard's might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Dillard's that investors need to be conscious of moving forward. Is Dillard's not quite the opportunity you were looking for? Why not check out our selection of top 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.