Adrad Holdings Limited (ASX:AHL) has announced that it will pay a dividend of A$0.0133 per share on the 3rd of April. This means the annual payment is 3.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Adrad Holdings

Adrad Holdings' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Adrad Holdings' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 48.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Adrad Holdings Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Adrad Holdings has grown its EPS by 85% over the past 12 months. We always like to see numbers like these going up, but we don't expect them to shoot up forever, especially as the company grows. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

Adrad Holdings Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Adrad Holdings might even raise payments in the future. 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Adrad Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.