Hill & Smith Holdings' (LON:HILS) Shareholders Will Receive A Bigger Dividend Than Last Year

Hill & Smith Holdings PLC's (LON:HILS) dividend will be increasing to UK£0.19 on 8th of July. Even though the dividend went up, the yield is still quite low at only 2.0%.

View our latest analysis for Hill & Smith Holdings

Hill & Smith Holdings' Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last payment made up 72% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 78.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 41% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was UK£0.13, compared to the most recent full-year payment of UK£0.31. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Hill & Smith Holdings might have put its house in order since then, but we remain cautious.

Hill & Smith Holdings May Find It Hard To Grow The Dividend

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. However, Hill & Smith Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Hill & Smith Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Hill & Smith Holdings will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Hill & Smith Holdings is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Hill & Smith Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.