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Hill & Smith PLC's (LON:HILS) dividend will be increasing from last year's payment of the same period to £0.15 on 5th of January. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.
Check out our latest analysis for Hill & Smith
Hill & Smith's Payment Has Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Hill & Smith's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to expand by 35.1%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.15 in 2013, and the most recent fiscal year payment was £0.37. This means that it has been growing its distributions at 9.4% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.6% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
Our Thoughts On Hill & Smith's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 7 analysts we track are forecasting for Hill & Smith for free with public analyst estimates for the company. Is Hill & Smith 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.