Medical devices manufacturer Smith & Nephew (LSE: SN) currently boasts a dividend yield of 3.2%. While that does not put it among the top ranks of FTSE 100 dividend payers, the yield is still attractive to me. But after previously rising most years for over a decade, the Smith & Nephew dividend has been static since the pandemic began. Might that change any time soon?
Flat interim dividend
In July, the company announced an interim dividend of 14.4c per share. On the one hand that was not surprising. After all, it was in line with Smith & Nephew’s stated policy of aiming to pay out an interim dividend equal to 40% of its most recent full-year dividend.
On the other hand, though, the news that the interim dividend would be the same for the fourth year in a row was a little disappointing. Prior to the pandemic, the company regularly raised its annual dividend. It rarely held its interim payout flat, while boosting the final one, meaning the overall annual amount rose. That last happened in 2017. Apart from that, it had raised its interim dividend every year this century before 2020. Since then, it has held both it and the final one flat.
Might the dividend rise this year?
That does not mean that this year’s full dividend will be flat. Although it did not increase the interim payout, the company could still choose to boost the final payout – just as it did back in 2017.
Will this happen? Nobody knows. After all, having held the dividend flat for the past few years, management could decide to do the same again. Such payouts are never guaranteed.
It is not that the company lacks money to increase it. In the first half, its earnings per share more than covered the payout.
Smith & Nephew did not give any specific indication of its intention for the full-year dividend in the interim results. But it did mention a capital allocation policy it adopted last year, including making reference to “our existing progressive dividend policy”.
A progressive dividend policy is one in which a company aims to raise its total payout each year. The results mentioning such a policy makes me think that the annual one may grow this year. That would happen if the company increases the size of its final payout.
My move
Whether that turns out to be the case will become clear when the company publishes its final results, probably in February.
I see Smith & Nephew as a blue-chip company with a quality business. Demand for the sorts of medical devices it produces will likely remain high. As quality matters for its customers, the company has pricing power. The Smith & Nephew dividend yield is attractive to me already. Any increase would only make it more so.
I do still see risks. Recovery from the pandemic has been slow, and inflation threatens to eat into profit margins. But I like the business and would consider buying the shares for my portfolio. If I do that now, hopefully I can benefit if the company starts increasing its annual dividend again.
