Howden Joinery Group (LON:HWDN) Will Pay A Larger Dividend Than Last Year At £0.048

The board of Howden Joinery Group Plc (LON:HWDN) has announced that it will be increasing its dividend by 2.1% on the 17th of November to £0.048, up from last year's comparable payment of £0.047. This will take the dividend yield to an attractive 2.8%, providing a nice boost to shareholder returns.

View our latest analysis for Howden Joinery Group

Howden Joinery Group's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Howden Joinery Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 4.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 39%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from £0.03 total annually to £0.206. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Howden Joinery Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Howden Joinery Group has impressed us by growing EPS 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.

We Really Like Howden Joinery Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Howden Joinery Group (of which 1 makes us a bit uncomfortable!) you should know about. Is Howden Joinery Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.