Hammond Power Solutions Inc. (TSE:HPS.A) has announced that it will be increasing its dividend on the 28th of June to CA$0.10, which will be 18% higher than last year. This will take the annual payment from 2.2% to 2.3% of the stock price, which is above what most companies in the industry pay.
Hammond Power Solutions' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Hammond Power Solutions' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
EPS is set to fall by 10.6% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 23%, which is comfortable for the company to continue in the future.
Hammond Power Solutions Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from CA$0.15 to CA$0.34. This works out to be a compound annual growth rate (CAGR) of approximately 8.5% a year over that time. 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Hammond Power Solutions has been growing its earnings per share at 60% a 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 this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Hammond Power Solutions stock. Is Hammond Power Solutions not quite the opportunity you were looking for? Why not check out our selection of top 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.
Hammond Power Solutions
Hammond Power Solutions Inc., together with its subsidiaries, engages in the design, manufacture, and sale of various transformers in Canada, the United States, Mexico, India, and internationally.
Flawless balance sheet with solid track record.