PWR Holdings Limited's (ASX:PWH) dividend will be increasing to AU$0.06 on 24th of September. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

Check out our latest analysis for PWR Holdings

PWR Holdings' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, PWR Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 22.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.

PWR Holdings' Dividend Has Lacked Consistency

PWR Holdings has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The first annual payment during the last 5 years was AU$0.012 in 2016, and the most recent fiscal year payment was AU$0.088. This works out to be a compound annual growth rate (CAGR) of approximately 48% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see PWR Holdings has been growing its earnings per share at 13% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

PWR Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 3 PWR 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 high performing dividend stock.

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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