Allegion plc's (NYSE:ALLE) dividend will be increasing to US$0.41 on 31st of March. The announced payment will take the dividend yield to 1.4%, which is in line with the average for the industry.
Allegion's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Allegion was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 5.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.
Allegion 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 US$0.32 in 2014 to the most recent annual payment of US$1.64. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Allegion has impressed us by growing EPS at 18% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Allegion's Dividend
Overall, a dividend increase is always good, and we think that Allegion is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Allegion that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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.