High (EPA:HCO) Will Pay A Larger Dividend Than Last Year At €0.32

High Co. SA (EPA:HCO) has announced that it will be increasing its dividend on the 23rd of May to €0.32. This will take the annual payment from 5.8% to 5.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for High

High's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by High's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to fall by 16.1% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 85%, meaning that most of the company's earnings are being paid out to shareholders.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from €0.075 to €0.32. This means that it has been growing its distributions at 16% per annum 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. High has impressed us by growing EPS at 7.9% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On High's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, High has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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.