KB Home's (NYSE:KBH) Dividend Will Be Increased To $0.20

KB Home (NYSE:KBH) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of November to $0.20. The payment will take the dividend yield to 1.8%, which is in line with the average for the industry.

Check out our latest analysis for KB Home

KB Home'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, KB Home was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 7.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 11%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

KB Home Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.10 in 2013 to the most recent total annual payment of $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. KB Home has seen EPS rising for the last five years, at 36% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like KB Home'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 earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for KB Home (1 shouldn't be ignored!) that you should be aware of before investing. Is KB Home not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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