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Hill & Smith PLC's (LON:HILS) dividend will be increasing from last year's payment of the same period to £0.22 on 7th of July. Although the dividend is now higher, the yield is only 2.6%, which is below the industry average.
View our latest analysis for Hill & Smith
Hill & Smith's Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. The last payment was quite easily covered by earnings, but it made up 98% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Looking forward, earnings per share is forecast to rise by 43.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.15 in 2013, and the most recent fiscal year payment was £0.35. This means that it has been growing its distributions at 8.8% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Hill & Smith might have put its house in order since then, but we remain cautious.
Hill & Smith May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, Hill & Smith's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Hill & Smith will make a great income stock. While Hill & Smith is earning enough to cover the payments, the cash flows are lacking. We don't think Hill & Smith is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Hill & Smith that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.