The board of Dewhurst Group Plc (LON:DWHT) has announced that it will be paying its dividend of £0.115 on the 26th of February, an increased payment from last year’s comparable dividend. The payment will take the dividend yield to 1.6%, which is in line with the average for the industry.

See our latest analysis for Dewhurst Group

We aren’t too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Dewhurst Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 16.1% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. The annual payment during the last 10 years was £0.09 in 2014, and the most recent fiscal year payment was £0.165. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Dewhurst Group has grown earnings per share at 16% per year over the past five years. Dewhurst Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 1 warning sign for Dewhurst Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.