The advice of AZZ inc. (NYSE: AZZ) announced it would pay a dividend on Nov. 1, with investors receiving $0.17 per share. This means that the dividend yield will be fairly typical at 2.0%.

See our latest analysis for AZZ

AZZ revenue easily covers distributions

Unless the payouts are sustainable, the dividend yield doesn’t mean much. However, prior to this announcement, AZZ’s dividend was comfortably covered by both cash flow and earnings. As a result, much of what he earned was plowed back into the business.

Over the next year, EPS is expected to increase by 6.2%. If the dividend continues to follow recent trends, we estimate the payout ratio to be 17%, which is within the range that allows us to be comfortable with the sustainability of the dividend.

AZZ has a strong track record

The company has been paying a dividend for a long time and it is quite stable, which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.50 in 2012 to the most recent total annual payment of $0.68. This equates to a compound annual growth rate (CAGR) of approximately 3.1% per year during this period. The slow and steady growth of dividends may not sound that exciting, but dividends have been flat for ten years, which we think makes it a pretty attractive offer.

The dividend should increase

Investors who have held shares of the company for the past few years will be pleased with the dividend income they have received. AZZ has seen EPS grow over the past five years, at 15% per year. EPS growth bodes well for the dividend, as does the low payout ratio the company is currently reporting.

AZZ looks like a big dividend stock

Overall, we like to see the dividend stay constant, and we think AZZ might even increase payouts in the future. Profits easily cover distributions and the company generates plenty of cash. Considering all of this, it looks like a good dividend opportunity.

Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. Pushing the debate a little further, we have identified 1 warning sign for AZZ that investors should be aware of going forward. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.