Ashtead Group plc (LON:AHT) has announced that it will be increasing its dividend on the 21st of September to UK£0.35. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.
Ashtead Group's Earnings Easily Cover the Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Ashtead Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 21.7%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.
Ashtead Group Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the dividend has gone from UK£0.029 to UK£0.42. This means that it has been growing its distributions at 31% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Ashtead Group has impressed us by growing EPS at 14% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Ashtead Group Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Ashtead 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. 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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