Gorman-Rupp's (NYSE:GRC) Upcoming Dividend Will Be Larger Than Last Year's

The board of The Gorman-Rupp Company (NYSE:GRC) has announced that it will be increasing its dividend by 2.9% on the 8th of December to $0.18, up from last year's comparable payment of $0.175. This makes the dividend yield about the same as the industry average at 2.3%.

View our latest analysis for Gorman-Rupp

Gorman-Rupp's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Gorman-Rupp was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 24.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.

Gorman-Rupp Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.32 in 2013 to the most recent total annual payment of $0.70. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. It's not great to see that Gorman-Rupp's earnings per share has fallen at approximately 5.9% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Gorman-Rupp's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. For instance, we've picked out 1 warning sign for Gorman-Rupp that investors should take into consideration. Is Gorman-Rupp 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.