Graco's (NYSE:GGG) Dividend Will Be Increased To $0.275

Graco Inc. (NYSE:GGG) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of February to $0.275. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

View our latest analysis for Graco

Graco's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Graco was easily earning enough to 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 33.0% 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.

Graco Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $0.367 total annually to $1.10. This means that it has been growing its distributions at 12% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

We Could See Graco's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Graco has been growing its earnings per share at 7.6% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Graco's prospects of growing its dividend payments in the future.

We Really Like Graco's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 11 analysts we track are forecasting for Graco for free with public analyst estimates for the company. Is Graco not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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