H.B. Fuller (NYSE:FUL) Will Pay A Larger Dividend Than Last Year At US$0.19

H.B. Fuller Company (NYSE:FUL) has announced that it will be increasing its dividend on the 28th of July to US$0.19. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for H.B. Fuller

H.B. Fuller's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, H.B. Fuller was paying a whopping 407% as a dividend, but this only made up 21% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 36.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 17%, which is in the range that makes us comfortable with the sustainability of the dividend.

H.B. Fuller Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$0.30 in 2012 to the most recent annual payment of US$0.76. This implies that the company grew its distributions at a yearly rate of about 9.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

We Could See H.B. Fuller's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that H.B. Fuller has grown earnings per share at 7.1% per year over the past five years. H.B. Fuller definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for H.B. Fuller (of which 1 is significant!) you should know about. Is H.B. Fuller 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.