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Hilton Food Group plc (LON:HFG) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of June to £0.249. This takes the dividend yield to 4.1%, which shareholders will be pleased with.

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Hilton Food Group's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Hilton Food Group was paying out 79% of earnings, but a comparatively small 63% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 50.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 57% which would be quite comfortable going to take the dividend forward.

See our latest analysis for Hilton Food Group

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from £0.133 total annually to £0.345. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Hilton Food Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Slow growth and a high payout ratio could mean that Hilton Food Group has maxed out the amount that it has been able to pay to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On Hilton Food Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hilton Food Group's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.