Harley-Davidson's (NYSE:HOG) Upcoming Dividend Will Be Larger Than Last Year's

The board of Harley-Davidson, Inc. (NYSE:HOG) has announced that it will be increasing its dividend by 4.5% on the 20th of March to $0.1725, up from last year's comparable payment of $0.165. The payment will take the dividend yield to 1.8%, which is in line with the average for the industry.

See our latest analysis for Harley-Davidson

Harley-Davidson's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Harley-Davidson's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 2.2%. If the dividend continues along recent trends, we estimate the payout ratio could be 13%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $0.84 total annually to $0.66. This works out to be a decline of approximately 2.4% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Harley-Davidson Could Grow Its 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. Harley-Davidson has seen EPS rising for the last five years, at 9.6% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Harley-Davidson's prospects of growing its dividend payments in the future.

We Really Like Harley-Davidson's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. To that end, Harley-Davidson has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about. Is Harley-Davidson 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.