When looking for the best dividend shares, it is easy to be lured in by high yields. I’m more interested in stocks that pay me a consistent dividend and have the prospects to grow their payout consistently for many years to come.
With that in mind, I like the look of Halma (LSE: HLMA). Here’s why.
As an introduction, Halma is a business that develops and sells public safety and hazard prevention products. It operates via six main divisions which are the development and supply of visual warning systems, toxic gas and smoke detectors, electronic alarm systems, and water leakage detectors.
Let’s start by taking a look at Halma’s share price. As I write, they’re trading for 2,139p. At this time last year, the shares were trading for 2,263p, which is a 5% drop over a 12-month period. I’m not concerned by this. In fact, many UK shares have fallen due to macroeconomic headwinds including rising inflation and interest rates.
The bull and bear case
When I’m reviewing any dividend shares, I start by looking at the dividend yield and record of payout. I’m buoyed by both of these aspects for Halma. Its yield stands at just below 1% right now. However, I’m more excited by the fact it has increased its payout by at least 5% for the past 43 years in a row! Analysts reckon it is on course for a 7% hike this year too. I do understand that dividends can be cancelled at any time.
Next, Halma’s business model enables it to generate lots of cash. This is good news because it allows for a progressive dividend policy that will reward shareholders. In addition to this, it provides Halma with the cash to grow the business, for example, through acquisitions. This can boost future earnings as well as dividends.
Finally, Halma has a great track record of performance to go along with its dividend record. I can see it has increased profits for the past 20 years in a row! However, I do understand that past performance is not a guarantee of the future.
One issue I must be wary of is Halma’s valuation, which looks high at present. The shares currently trade with a price-to-earnings ratio of 25. Any fall in trading could impact the share price negatively.
Another thing for me to keep an eye on is Halma’s acquisitions, which are one of its key growth drivers. It is worth remembering that not all acquisitions are successful. Some can be costly and impact financials and investor sentiment, as well as payout, if they don’t work out.
Dividend shares with a good record
When looking to boost my passive income, I much prefer stocks that have a consistent payout and the potential to grow this consistently. This is why I like the look of Halma shares primarily. I’ll take this over a high yield with inconsistent payouts. Furthermore, Halma’s performance record and its business model also help me make my investment case.
I would be willing to buy Halma shares if I had the spare cash to do so.