Stock Analysis

Ashtead Group's (LON:AHT) Dividend Will Be Increased To UK£0.35

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LSE:AHT
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Ashtead Group plc (LON:AHT) will increase its dividend on the 21st of September to UK£0.35. Despite this raise, the dividend yield of 0.8% is only a modest boost to shareholder returns.

See our latest analysis for Ashtead Group

Ashtead Group's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Ashtead Group was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 19.8%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

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LSE:AHT Historic Dividend July 30th 2021

Ashtead Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was UK£0.03 in 2011, and the most recent fiscal year payment was UK£0.42. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Ashtead Group has grown earnings per share at 14% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Ashtead Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For instance, we've picked out 2 warning signs for Ashtead Group that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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