The board of Dover Corporation (NYSE:DOV) has announced that it will be increasing its dividend on the 14th of December to US$0.50. This takes the annual payment to 1.2% of the current stock price, which is about average for the industry.
Dover's Earnings Easily Cover the Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Dover was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 9.6%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.
Dover Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$1.10 in 2011 to the most recent annual payment of US$2.00. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Dover has seen EPS rising for the last five years, at 16% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Dover's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Dover that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
What are the risks and opportunities for Dover?
Trading at 15.9% below our estimate of its fair value
Earnings are forecast to grow 5.9% per year
Earnings grew by 23.5% over the past year
Has a high level of debt
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.
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