Hercules Site Services (LON:HERC) Has Affirmed Its Dividend Of £0.006

Hercules Site Services Plc (LON:HERC) has announced that it will pay a dividend of £0.006 per share on the 22nd of August. This payment means that the dividend yield will be 4.2%, which is around the industry average.

Check out our latest analysis for Hercules Site Services

Hercules Site Services' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 189% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 16%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 86.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Hercules Site Services' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 2 years was £0.017 in 2022, and the most recent fiscal year payment was £0.0172. Dividend payments have been growing, but very slowly over the period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Potential Is Shaky

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. Earnings per share has been sinking by 81% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Hercules Site Services you should be aware of, and 1 of them is potentially serious. Is Hercules Site Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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