Black Hills (NYSE:BKH) Is Increasing Its Dividend To $0.65

The board of Black Hills Corporation (NYSE:BKH) has announced that the dividend on 1st of March will be increased to $0.65, which will be 4.0% higher than last year's payment of $0.625 which covered the same period. This makes the dividend yield about the same as the industry average at 4.8%.

See our latest analysis for Black Hills

Black Hills' Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by Black Hills' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 12.1%. If the dividend continues on this path, the payout ratio could be 63% by next year, which we think can be pretty sustainable going forward.

Black Hills Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $1.52, compared to the most recent full-year payment of $2.50. This implies that the company grew its distributions at a yearly rate of about 5.1% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Black Hills has seen earnings per share falling at 3.7% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Black Hills' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Black Hills has 2 warning signs (and 1 which is a bit concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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