Samuel Heath & Sons (LON:HSM) Is Paying Out A Dividend Of £0.055

The board of Samuel Heath & Sons plc (LON:HSM) has announced that it will pay a dividend of £0.055 per share on the 24th of March. This means the dividend yield will be fairly typical at 3.4%.

See our latest analysis for Samuel Heath & Sons

Samuel Heath & Sons' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Samuel Heath & Sons' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 5.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was £0.118, compared to the most recent full-year payment of £0.151. This means that it has been growing its distributions at 2.6% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See Samuel Heath & Sons' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Samuel Heath & Sons has impressed us by growing EPS at 5.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Samuel Heath & Sons' prospects of growing its dividend payments in the future.

Our Thoughts On Samuel Heath & Sons' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Samuel Heath & Sons is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 3 warning signs for Samuel Heath & Sons (of which 1 doesn't sit too well with us!) 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.