Federated Hermes, Inc. (NYSE: FHI) Investors are due to receive a payout of $0.27 per share on August 15. Based on this payout, the dividend yield on the company’s stock will be 3.2%, which is an attractive increase in returns for shareholders.
Federated Hermes payment has strong revenue coverage
While it’s good to have a high dividend yield, we also have to ask ourselves if the payout is sustainable. Prior to this announcement, Federated Hermes’ dividend was comfortably covered by both cash flow and earnings. This indicates that a large portion of the profits are reinvested in the business, with the aim of fueling growth.
Looking ahead, earnings per share are expected to increase 26.6% over the next year. If the dividend continues on this path, the payout ratio could be 31% by next year, which we believe can be quite sustainable going forward.
Federated Hermes has a strong track record
The company has been paying a dividend for a long time and it is quite stable, which gives us confidence in the future dividend potential. Since 2012, the annual payment at the time was $0.96, compared to the most recent annual payment of $1.08. This implies that the company has increased its distributions at an annual rate of approximately 1.2% over this period. While the regularity of dividend payouts is impressive, we think the relatively slow rate of growth is less appealing.
Federated Hermes could increase its dividend
Investors might be attracted to the stock because of the quality of its payment history. It is encouraging to see that Federated Hermes has grown its earnings per share by 5.6% per year over the past five years. Profits are on the rise and pay only a small portion of those profits to shareholders.
Federated Hermes looks like a big dividend stock
In summary, it is good to see that the dividend remains constant, and we do not think there is any reason to suspect that this could change in the medium term. The company is easily earning enough to cover its dividend payments and it’s good to see that income translate into cash flow. Overall, this checks a lot of the boxes we look for when choosing an income stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic one. However, there are other things for investors to consider when analyzing stock performance. Pushing the debate a little further, we have identified 1 warning sign for Federated Hermes that investors should be aware of going forward. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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