Should Hill & Smith Holdings PLC (LON:HILS) Be Part Of Your Dividend Portfolio?
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Could Hill & Smith Holdings PLC (LON:HILS) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
A slim 2.7% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Hill & Smith Holdings could have potential. Some simple analysis can reduce the risk of holding Hill & Smith Holdings for its dividend, and we'll focus on the most important aspects below.
Explore this interactive chart for our latest analysis on Hill & Smith Holdings!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, Hill & Smith Holdings paid out 53% of its profit as dividends. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. The company paid out 63% of its free cash flow, which is not bad per se, but does start to limit the amount of cash Hill & Smith Holdings has available to meet other needs. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
We update our data on Hill & Smith Holdings every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Hill & Smith Holdings's dividend payments. During the past ten-year period, the first annual payment was UK£0.094 in 2009, compared to UK£0.32 last year. Dividends per share have grown at approximately 13% per year over this time.
Dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Potential
The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. It's good to see Hill & Smith Holdings has been growing its earnings per share at 15% a year over the past 5 years. Earnings per share have been growing rapidly, but given that it is paying out more than half of its earnings as dividends, we wonder how Hill & Smith Holdings will keep funding its growth projects in the future.
Conclusion
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Hill & Smith Holdings's is paying out more than half its income as dividends, but at least the dividend is covered by both reported earnings and cashflow. We like that it has been delivering solid improvement in its earnings per share, and relatively consistent dividend payments. Overall we think Hill & Smith Holdings is an interesting dividend stock, although it could be better.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Hill & Smith Holdings analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
