Stock Analysis

Hammond Power Solutions' (TSE:HPS.A) Dividend Will Be CA$0.085

TSX:HPS.A
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The board of Hammond Power Solutions Inc. (TSE:HPS.A) has announced that it will pay a dividend on the 29th of June, with investors receiving CA$0.085 per share. This makes the dividend yield 3.3%, which will augment investor returns quite nicely.

See our latest analysis for Hammond Power Solutions

Hammond Power Solutions' Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Hammond Power Solutions was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 18.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

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TSX:HPS.A Historic Dividend June 12th 2021

Hammond Power Solutions Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was CA$0.13 in 2011, and the most recent fiscal year payment was CA$0.34. This means that it has been growing its distributions at 10% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Hammond Power Solutions has grown earnings per share at 18% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Hammond Power Solutions' prospects of growing its dividend payments in the future.

We Really Like Hammond Power Solutions' Dividend

Overall, we like to see the dividend staying consistent, and we think Hammond Power Solutions might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Hammond Power Solutions that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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