KB Home (NYSE:KBH) Is Due To Pay A Dividend Of $0.15

The board of KB Home (NYSE:KBH) has announced that it will pay a dividend on the 16th of February, with investors receiving $0.15 per share. Including this payment, the dividend yield on the stock will be 1.7%, which is a modest boost for shareholders' returns.

View our latest analysis for KB Home

KB Home's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, KB Home 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.

Over the next year, EPS is forecast to fall by 28.4%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 12%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.25 in 2013 to the most recent total annual payment of $0.60. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that KB Home has grown earnings per share at 36% per year over the past five years. 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.

We Really Like KB Home's Dividend

Overall, we like to see the dividend staying consistent, and we think KB Home might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, KB Home has 4 warning signs (and 2 which are significant) we think you should know about. Is KB Home not quite the opportunity you were looking for? Why not check out our selection of top 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.

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