DHT Holdings, Inc. (NYSE:DHT) will increase its dividend from last year's comparable payment on the 26th of February to $0.41. This makes the dividend yield 6.5%, which is above the industry average.

DHT Holdings' Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, DHT Holdings' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 30.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.60 in 2016 to the most recent total annual payment of $0.98. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Come By

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though DHT Holdings' EPS has declined at around 5.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

DHT Holdings' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think DHT Holdings will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Is DHT Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.