Black Hills' (NYSE:BKH) Dividend Will Be Increased To $0.676

Black Hills Corporation's (NYSE:BKH) periodic dividend will be increasing on the 1st of March to $0.676, with investors receiving 4.0% more than last year's $0.65. Based on this payment, the dividend yield for the company will be 4.4%, which is fairly typical for the industry.

View our latest analysis for Black Hills

Black Hills' Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last dividend, Black Hills is earning enough to cover the payment, but then it makes up 206% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 22.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 64% by next year, which is in a pretty sustainable range.

Black Hills Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $1.56 in 2015, and the most recent fiscal year payment was $2.60. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Black Hills May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Black Hills hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Black Hills' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Black Hills' payments are rock solid. While Black Hills is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Black Hills (1 doesn't sit too well with us!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.