AZZ Inc. (NYSE:AZZ) has announced that it will pay a dividend of $0.17 per share on the 26th of July. Based on this payment, the dividend yield will be 1.6%, which is fairly typical for the industry.
View our latest analysis for AZZ
AZZ's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, AZZ was paying only paying out a fraction of earnings, but the payment was a massive 130% of cash flows. While the business may be attempting to set a balanced dividend policy, 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 24.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.
AZZ Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $0.56 total annually to $0.68. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend Has Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. AZZ has impressed us by growing EPS at 6.0% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for AZZ's prospects of growing its dividend payments in the future.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While AZZ is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, AZZ has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
About NYSE:AZZ
AZZ
Provides hot-dip galvanizing and coil coating solutions in North America.
Average dividend payer and fair value.
