Hill & Smith (LON:HILS) Is Paying Out A Larger Dividend Than Last Year

Hill & Smith PLC's (LON:HILS) dividend will be increasing from last year's payment of the same period to £0.325 on 4th of July. Even though the dividend went up, the yield is still quite low at only 2.6%.

See our latest analysis for Hill & Smith

Hill & Smith's Projected Earnings Seem Likely To Cover Future 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 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.

Over the next year, EPS is forecast to expand by 40.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.16 in 2015, and the most recent fiscal year payment was £0.49. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Hill & Smith Could Grow Its 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. We are encouraged to see that Hill & Smith has grown earnings per share at 9.2% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Hill & Smith Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Hill & Smith is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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 1 warning sign for Hill & Smith that investors need to be conscious of moving forward. 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.