H&E Equipment Services (NASDAQ:HEES) Is Paying Out A Dividend Of $0.275

H&E Equipment Services, Inc. (NASDAQ:HEES) will pay a dividend of $0.275 on the 15th of September. This makes the dividend yield 2.4%, which will augment investor returns quite nicely.

Check out our latest analysis for H&E Equipment Services

H&E Equipment Services' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, H&E Equipment Services was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 32.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

H&E Equipment Services Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of $1.00 in 2014 to the most recent total annual payment of $1.10. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

H&E Equipment Services May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 4.4% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, H&E Equipment Services has the option to increase the payout ratio to return more cash to shareholders.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about H&E Equipment Services' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've identified 3 warning signs for H&E Equipment Services (1 can't be ignored!) that you should be aware of before investing. Is H&E Equipment Services 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.