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

The board of Hill & Smith PLC (LON:HILS) has announced that it will be paying its dividend of £0.13 on the 6th of January, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.8%.

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Hill & Smith's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last dividend, Hill & Smith is earning enough to cover the payment, but then it makes up 112% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 32.9%. 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. Since 2012, the dividend has gone from £0.132 total annually to £0.32. This works out to be a compound annual growth rate (CAGR) of approximately 9.3% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, Hill & Smith's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Hill & Smith is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Hill & Smith's Dividend

Overall, we always like to see the dividend being raised, but we don't think Hill & Smith will make a great income stock. While Hill & Smith is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Hill & Smith that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.