M+S Hydraulic AD's (BUL:MSH) Dividend Will Be Increased To лв0.35

The board of M+S Hydraulic AD (BUL:MSH) has announced that it will be increasing its dividend by 17% on the 7th of July to лв0.35. This makes the dividend yield 3.8%, which is above the industry average.

Check out our latest analysis for M+S Hydraulic AD

M+S Hydraulic AD's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, M+S Hydraulic AD was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Over the next year, EPS could expand by 10.4% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.

M+S Hydraulic AD Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from лв0.13 to лв0.30. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see M+S Hydraulic AD has been growing its earnings per share at 10% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On M+S Hydraulic AD's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for M+S Hydraulic AD that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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