J.B. Hunt Transport Services (NASDAQ:JBHT) Is Increasing Its Dividend To $0.42

The board of J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) has announced that the dividend on 24th of February will be increased to $0.42, which will be 5.0% higher than last year's payment of $0.40 which covered the same period. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for J.B. Hunt Transport Services

J.B. Hunt Transport Services' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, J.B. Hunt Transport Services' dividend was only 17% of earnings, however it was paying out 113% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 20.6%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

J.B. Hunt Transport Services 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 annual payment during the last 10 years was $0.56 in 2013, and the most recent fiscal year payment was $1.60. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Has Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that J.B. Hunt Transport Services has grown earnings per share at 8.5% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think J.B. Hunt Transport Services' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for J.B. Hunt Transport Services that investors should take into consideration. Is J.B. Hunt Transport Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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