Stelrad Group plc (LSE:SRAD) raised its Interim Dividend by 5% to 3.19 pence in August 2026, following a 2025 total dividend of 8.09 pence, with Leverage at 1.29 times net Debt to Earnings before interest, tax, Depreciation and amortisation. This article reviews how earnings, Cash Flow and the Balance Sheet support the payout.

Company Overview

Stelrad is a specialist manufacturer and distributor of steel panel and designer radiators in the UK, Europe and Turkey, with brands including Stelrad, Henrad, Termo Teknik, DL Radiators and Hudevad. In its 2025 market data for 22 European countries it held a 24.0% share. Revenue for 2025 was GBP 279.6 million, and adjusted operating profit rose 3% to GBP 32.5 million.

Dividend Profile

The 2025 total dividend was 8.09 pence, up 3.9% from 7.79 pence, comprising an interim of 3.04 pence and a final of 5.05 pence. The 2026 interim dividend of 3.19 pence is payable on 23 October 2026. The stock table shows a trailing Dividend Yield of 5.09%, trailing Diluted Earnings per Share of GBP 0.10 and a price-to-earnings ratio of 15.94.

Dividend Sustainability Analysis

The board has linked dividends to its confidence in the balance sheet, cash conversion and growth prospects, and has increased the payout each period in recent years. Statutory profit in 2025 was affected by one-off items, so adjusted measures are the main reference for assessing cover.

Payout Ratio and Earnings Coverage

Adjusted earnings per share were 13.08 pence for 2025, which gives adjusted cover of about 1.6 times for the 8.09 pence dividend. In the first half of 2026, adjusted earnings per share rose 16% to 7.43 pence from 6.41 pence, compared with the 3.19 pence interim dividend. Statutory profit for 2025 was GBP 0.8 million after GBP 14.9 million of one-off items, which is why trailing diluted earnings per share in the stock table are lower.

Adjusted Cash Flow Coverage

Free cash flow for 2025 was GBP 20.5 million, compared with GBP 9.6 million, and adjusted operating cash conversion was 111.4%. Operating cash conversion over the last twelve months to June 2026 was 102%. The dividend costs roughly GBP 10 million a year. First-half 2026 free cash flow was an outflow of GBP 0.2 million because of the usual seasonal Working Capital peak.

Balance Sheet and Leverage

Net debt before leases was GBP 51.2 million at 31 December 2025, with leverage of 1.16 times, an improvement from 1.37 times. At 30 June 2026 net debt was GBP 57.5 million, compared with GBP 64.8 million a year earlier, and leverage was 1.29 times against 1.48 times, with further reduction expected in the second half. The group renewed its GBP 100 million Loan Facility in December 2025.

Liquidity

Working capital peaks in the first half and falls in the second half as stock is sold, which is why leverage typically reduces after June. Committed facilities provide headroom, and return on capital employed was 29.0% in the first half.

Revenue Stability and Profit Trends

Revenue in 2025 declined 3.8%, while adjusted operating profit rose, helped by cost optimisation. In the first half of 2026 Europe offset weaker results in the UK and Turkey, with European adjusted operating profit up GBP 2.7 million. Management said trading continues in line with expectations, with the outlook for the full year unchanged. Demand across its end markets is stable but subdued.

Interest Rate and Commodity Exposure

Steel is the main input cost, and the group manages price rises through pricing and procurement. Interest costs fell in the first half, which supported earnings growth. Turkish currency movements affect reported profit from that business.

Counterparty Concentration

Customers include merchants and wholesalers across several countries. Supplier relationships are spread, and the group exited a low-margin Supply contract in 2025 as part of its optimisation.

Management Commentary

Management said commercial and operational initiatives from 2025 further optimised the cost base and drove progress in 2026 despite challenging market conditions, and that the group maintained its market leadership. The board said the interim dividend increase reflects the strength of the balance sheet and confidence in growth and rising cash generation.

Sector-Specific Dividend Risks

Building products follow construction and renovation activity, interest rates and consumer confidence. The group has been supporting premium products and decarbonisation-related heating solutions, which management expects to support margins as volumes recover.

Key Risks to Monitor

1. Subdued UK and Turkish markets.

2. Steel price and energy cost movements.

3. Seasonal first-half cash outflow.

4. One-off items affecting statutory profit.

5. Currency movements in Turkey.

Bull Case

Supporters point to a 5% increase in the interim dividend, adjusted earnings per share up 16%, free cash flow of GBP 20.5 million in 2025, return on capital employed of 29.0%, leverage falling year on year and market leadership in Europe.

Bear Case

A measured view recognises that revenue declined in 2025, that statutory profit was far below adjusted profit, that UK and Turkish volumes were weaker, and that leverage rises seasonally in the first half.

Latest News and Developments

Interim results in August 2026 showed adjusted earnings per share of 7.43 pence, leverage of 1.29 times and an interim dividend of 3.19 pence, with the outlook for the year unchanged. Investors can consult the company's latest announcement for trading updates.

Dividend Sustainability Rating

Rating: Moderately Sustainable

The rating reflects adjusted cover of about 1.6 times, high cash conversion and falling leverage, balanced against subdued end markets and lower statutory earnings.

Investor Takeaway

Stelrad is lifting its dividend while reducing leverage, supported by adjusted earnings growth and cash conversion above 100%. The recovery in UK and Turkish demand and the second-half cash inflow are the items to follow.