Hamilton Beach Brands Holding Company (NYSE:HBB) has announced that it will be increasing its periodic dividend on the 15th of June to $0.11, which will be 4.8% higher than last year's comparable payment amount of $0.105. This will take the annual payment to 4.0% of the stock price, which is above what most companies in the industry pay.
Hamilton Beach Brands Holding's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Hamilton Beach Brands Holding was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, EPS could fall by 7.3% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 54%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Hamilton Beach Brands Holding Doesn't Have A Long Payment History
It is great to see that Hamilton Beach Brands Holding has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 5 years was $0.34 in 2018, and the most recent fiscal year payment was $0.42. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% a year over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Dividend Growth May Be Hard To Come By
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. Over the past five years, it looks as though Hamilton Beach Brands Holding's EPS has declined at around 7.3% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Overall, we always like to see the dividend being raised, but we don't think Hamilton Beach Brands Holding will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Hamilton Beach Brands Holding that investors should take into consideration. Is Hamilton Beach Brands Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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