Howden Joinery Group (LON:HWDN) Is Increasing Its Dividend To £0.048

Howden Joinery Group Plc (LON:HWDN) will increase its dividend on the 17th of November to £0.048, which is 2.1% higher than last year's payment from the same period of £0.047. This takes the dividend yield to 2.9%, which shareholders will be pleased with.

View our latest analysis for Howden Joinery Group

Howden Joinery Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Howden Joinery Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 4.8%. If the dividend continues along recent trends, we estimate the payout ratio could be 39%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.03, compared to the most recent full-year payment of £0.207. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Howden Joinery Group has grown earnings per share at 15% per year over the past five years. Howden Joinery Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Howden Joinery Group Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Howden Joinery Group (1 is a bit concerning!) that you should be aware of before investing. Is Howden Joinery Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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