Hargreaves Services (LON:HSP) Will Pay A Larger Dividend Than Last Year At £0.18

Hargreaves Services Plc (LON:HSP) will increase its dividend on the 30th of October to £0.18, which is 2.3% higher than last year's payment from the same period of £0.176. Despite this raise, the dividend yield of 4.3% is only a modest boost to shareholder returns.

See our latest analysis for Hargreaves Services

Hargreaves Services' Payment Has Solid Earnings Coverage

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, Hargreaves Services 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.

Over the next year, EPS could expand by 86.1% if recent trends continue. If the dividend continues on this path, the payout ratio could be 11% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was £0.178, compared to the most recent full-year payment of £0.206. This implies that the company grew its distributions at a yearly rate of about 1.5% over that duration. 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Hargreaves Services has been growing its earnings per share at 86% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Hargreaves Services Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Hargreaves Services is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Hargreaves Services that investors need to be conscious of moving forward. Is Hargreaves Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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