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

Hill & Smith PLC (LON:HILS) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of July to £0.22. Even though the dividend went up, the yield is still quite low at only 2.6%.

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. Based on the last dividend, Hill & Smith is earning enough to cover the payment, but then it makes up 98% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 43.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was £0.15, compared to the most recent full-year payment of £0.35. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Hill & Smith May Find It Hard To Grow The Dividend

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

Hill & Smith's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Hill & Smith's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign 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.