High (EPA:HCO) Is Increasing Its Dividend To €0.40

The board of High Co. SA (EPA:HCO) has announced that the dividend on 26th of May will be increased to €0.40, which will be 25% higher than last year's payment of €0.32 which covered the same period. This takes the dividend yield to 6.3%, which shareholders will be pleased with.

See our latest analysis for High

High's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, High's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 4.8% over the next 12 months. If recent patterns in the dividend continue, we could see the payout ratio reaching 93% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was €0.075, compared to the most recent full-year payment of €0.32. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

High Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that High has grown earnings per share at 8.8% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We Really Like High's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. 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. 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. To that end, High has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is High not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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