Applied Industrial Technologies, Inc. (NYSE:AIT) will increase its dividend on the 31st of May to US$0.34. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

See our latest analysis for Applied Industrial Technologies

Applied Industrial Technologies' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Applied Industrial Technologies' 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.

The next year is set to see EPS grow by 3.1%. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

Applied Industrial Technologies Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was US$0.76 in 2012, and the most recent fiscal year payment was US$1.36. This means that it has been growing its distributions at 6.0% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

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. We are encouraged to see that Applied Industrial Technologies has grown earnings per share at 18% per year over the past five years. Applied Industrial Technologies definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Applied Industrial Technologies Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Applied Industrial Technologies that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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