Stock Analysis

Hammond Power Solutions (TSE:HPS.A) Has Affirmed Its Dividend Of CA$0.085

TSX:HPS.A
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Hammond Power Solutions Inc. (TSE:HPS.A) has announced that it will pay a dividend of CA$0.085 per share on the 24th of September. This means the annual payment is 2.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Hammond Power Solutions

Hammond Power Solutions' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Hammond Power Solutions' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 1.6% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 30%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
TSX:HPS.A Historic Dividend September 10th 2021

Hammond Power Solutions Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from CA$0.13 in 2011 to the most recent annual payment of CA$0.34. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Hammond Power Solutions has grown earnings per share at 21% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Hammond Power Solutions Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Taking the debate a bit further, we've identified 1 warning sign for Hammond Power Solutions that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.
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