Lovisa Holdings Limited (ASX:LOV) is reducing its dividend from last year's comparable payment to A$0.27 on the 16th of October. This means that the annual payment is 1.8% of the current stock price, which is lower than what the rest of the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Lovisa Holdings' stock price has increased by 47% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Lovisa Holdings' Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Lovisa Holdings' profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 76.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 67% which would be quite comfortable going to take the dividend forward.ASX:LOV Historic Dividend August 30th 2025

See our latest analysis for Lovisa Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was A$0.133, compared to the most recent full-year payment of A$0.77. This means that it has been growing its distributions at 19% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Lovisa Holdings' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Lovisa Holdings has impressed us by growing EPS at 49% per year over the past five years. Although earnings per share is up nicely Lovisa Holdings is paying out 99% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Lovisa Holdings is a great stock to add to your portfolio if income is your focus.

Story Continues

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 15 analysts we track are forecasting for Lovisa Holdings for free  with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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