Hammond Power Solutions Inc. (TSE:HPS.A) has announced that it will be increasing its dividend on the 28th of June to CA$0.10, which will be 18% higher than last year. This takes the dividend yield from 2.2% to 2.3%, which shareholders will be pleased with.
Hammond Power Solutions' Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Hammond Power Solutions 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 10.6% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 23%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Hammond Power Solutions Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was CA$0.15 in 2012, and the most recent fiscal year payment was CA$0.34. This implies that the company grew its distributions at a yearly rate of about 8.5% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Hammond Power Solutions has grown earnings per share at 60% per year over the past five years. 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 Hammond Power Solutions' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Hammond Power Solutions management tenure, salary, and performance. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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