Timken (NYSE:TKR) Is Paying Out A Larger Dividend Than Last Year

The Timken Company (NYSE:TKR) has announced that it will be increasing its periodic dividend on the 30th of May to $0.33, which will be 6.5% higher than last year's comparable payment amount of $0.31. This takes the annual payment to 1.6% of the current stock price, which is about average for the industry.

View our latest analysis for Timken

Timken's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Timken's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 43.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 16%, which is in the range that makes us comfortable with the sustainability of the dividend.

Timken Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.92 in 2013, and the most recent fiscal year payment was $1.24. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Timken has grown earnings per share at 12% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Timken's prospects of growing its dividend payments in the future.

We Really Like Timken's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Timken that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.