Helical plc's (LON:HLCL) dividend will be increasing to UK£0.074 on 26th of July. Based on the announced payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.
Helical's Earnings Easily Cover the Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last dividend, Helical is earning enough to cover the payment, but the it makes up 303% 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.
The next year is set to see EPS grow by 110.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.
Helical Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the dividend has gone from UK£0.048 to UK£0.10. This means that it has been growing its distributions at 7.8% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Helical's EPS has fallen by approximately 31% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
In summary, while it's always good to see the dividend being raised, we don't think Helical's payments are rock solid. While Helical is earning enough to cover the payments, the cash flows are lacking. We don't think Helical is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Helical (2 don't sit too well with us!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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