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Hilton Food Group plc's (LON:HFG) dividend will be increasing to UK£0.082 on 3rd of December. This makes the dividend yield about the same as the industry average at 2.4%.
Hilton Food Group's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Hilton Food Group was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 76% indicates it is more focused on returning cash to shareholders than growing the business.
Over the next year, EPS is forecast to expand by 22.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.
Hilton Food Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the dividend has gone from UK£0.10 to UK£0.21. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
We Could See Hilton Food Group's Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Hilton Food Group has grown earnings per share at 8.0% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Hilton Food Group that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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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