Lennox International Inc. (NYSE:LII) will increase its dividend on the 15th of July to US$1.06. This takes the annual payment to 1.8% of the current stock price, which is about average for the industry.
Lennox International's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Lennox International's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 14.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.
Lennox International Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from US$0.72 to US$4.24. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Lennox International has been growing its earnings per share at 13% a year over the past five years. Lennox International definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Lennox International 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. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Lennox International that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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