Samuel Heath & Sons' (LON:HSM) Shareholders Will Receive A Bigger Dividend Than Last Year

Samuel Heath & Sons plc (LON:HSM) will increase its dividend from last year's comparable payment on the 2nd of September to £0.0756. This takes the annual payment to 2.4% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Samuel Heath & Sons

Samuel Heath & Sons' Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Samuel Heath & Sons was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 7.8% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of £0.118 in 2012 to the most recent total annual payment of £0.151. This means that it has been growing its distributions at 2.6% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Samuel Heath & Sons 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 Samuel Heath & Sons has grown earnings per share at 7.8% 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, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. For example, we've picked out 2 warning signs for Samuel Heath & Sons that investors should know about before committing capital to this stock. Is Samuel Heath & Sons not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.