Hammond Power Solutions (TSE:HPS.A) Is Paying Out A Dividend Of CA$0.275

Hammond Power Solutions Inc.'s (TSE:HPS.A) investors are due to receive a payment of CA$0.275 per share on 25th of September. This means the annual payment will be 0.9% of the current stock price, which is lower than the industry average.

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Hammond Power Solutions' Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Hammond Power Solutions is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 6.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Hammond Power Solutions

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 dividend has gone from an annual total of CA$0.24 in 2015 to the most recent total annual payment of CA$1.10. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

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. Hammond Power Solutions has seen EPS rising for the last five years, at 41% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Hammond Power Solutions' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hammond Power Solutions' payments, as there could be some issues with sustaining them into the future. While Hammond Power Solutions is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good 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. 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 Hammond Power Solutions 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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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.