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The board of AZZ Inc. (NYSE:AZZ) has announced that it will pay a dividend of $0.17 per share on the 15th of May. This means the annual payment will be 0.8% of the current stock price, which is lower than the industry average.
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AZZ's Future Dividend Projections Appear Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, AZZ's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 58.3% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for AZZ
AZZ Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.56 in 2015, and the most recent fiscal year payment was $0.68. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth May Be Hard To Come By
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. AZZ has seen earnings per share falling at 9.7% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
An additional note is that the company has been raising capital by issuing stock equal to 19% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On AZZ's Dividend
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.