Hill & Smith (LON:HILS) Is Increasing Its Dividend To £0.15

Hill & Smith PLC (LON:HILS) has announced that it will be increasing its periodic dividend on the 5th of January to £0.15, which will be 15% higher than last year's comparable payment amount of £0.13. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Hill & Smith

Hill & Smith's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last dividend was quite easily covered by Hill & Smith's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 34.4%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.15 in 2013 to the most recent total annual payment of £0.35. This works out to be a compound annual growth rate (CAGR) of approximately 8.8% a year over that time. 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 might have put its house in order since then, but we remain cautious.

Hill & Smith 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. Earnings has been rising at 4.6% per annum over the last five years, which admittedly is a bit slow. Growth of 4.6% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Hill & Smith's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Hill & Smith analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Hill & Smith not quite the opportunity you were looking for? Why not check out our selection of top 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.