JB Hi-Fi (ASX:JBH) Is Increasing Its Dividend To A$2.05

The board of JB Hi-Fi Limited (ASX:JBH) has announced that it will be paying its dividend of A$2.05 on the 5th of September, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 2.3% is only a modest boost to shareholder returns.

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JB Hi-Fi's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by JB Hi-Fi's earnings. This means that a large portion of its earnings are being retained to grow the business.

Earnings per share is forecast to rise by 21.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 82%, which is on the higher side, but certainly still feasible.

Check out our latest analysis for JB Hi-Fi

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of A$0.90 in 2015 to the most recent total annual payment of A$2.75. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

JB Hi-Fi Could Grow Its 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. It's encouraging to see that JB Hi-Fi has been growing its earnings per share at 10.0% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

JB Hi-Fi 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. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 14 JB Hi-Fi analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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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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.