Investors can expect infrastructure engineering business Hill & Smith (HILS) to recover its capital growth and income returns reputation after reinstating its dividend.

The FTSE 250 member, which designs and manufactures a wide range of specialised products needed when new roads and bridges are built, or when big utility projects go up, proposed a 9.2p per share dividend for the first half after axing shareholder payouts during the depth of the Covid-19 crisis.

This represents a 13% decline on 2019's 10.6p half-year dividend, but the company now believes it has the trading and cash flow certainty needed to remake its long-term income commitment to investors.

LONG-TERM COMMITMENT

Before the Covid-19 cut Hill & Smith had a record for paying increased dividends stretching back years. Today’s pledge is for future annual dividends on a rough 40%:60% split between half-year and full year payments.

Source: Hill & Smith

This implies a 23p per share 2020 full year shareholder payout, a hefty rebasing compared to pre-pandemic levels. Last year’s total payout had been pitched at 33.6p per share, before the company pulled its second half 23p payment. This sets its income baseline back to below 2017 levels.

Yet investors seem sanguine about the dividend reset, welcoming today’s announcement by pushing the shares more than 4% higher to £12.72, implying a 2020 income yield of 1.8%.

‘GRADUAL RECOVERY’

Hill & Smith also said on Wednesday that it expected performance to rebound after reporting that first-half profit fell by more than a third. For the six months to 30 June 2020, pre-tax profit fell 42% to £19.5 million as revenue declined 7% to £315.6 million.

The performance was impacted by ‘Covid-19 related business closures and reduced activity levels from the middle of March,’ the company said.

But optimism now prevails, with management seeing a gradual recovery in trading and, ‘assuming that end markets continue to remain open, we expect a stronger performance in the second half,’ the company said.

READ MORE ABOUT HILL & SMITH HERE

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 05 Aug 2020