James Halstead (LON:JHD) Is Increasing Its Dividend To £0.0605

James Halstead plc's (LON:JHD) periodic dividend will be increasing on the 12th of December to £0.0605, with investors receiving 0.8% more than last year's £0.06. This takes the dividend yield to 6.3%, which shareholders will be pleased with.

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James Halstead's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, James Halstead was paying out quite a large proportion of both earnings and cash flow, with the dividend being 118% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 13.1%. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

Check out our latest analysis for James Halstead

James Halstead Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was £0.055, compared to the most recent full-year payment of £0.088. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 3.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Slow growth and a high payout ratio could mean that James Halstead has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

James Halstead's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think James Halstead's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for James Halstead that investors need to be conscious of moving forward. 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.