Do These 3 Checks Before Buying The Hackett Group, Inc. (NASDAQ:HCKT) For Its Upcoming Dividend
The Hackett Group, Inc. (NASDAQ:HCKT) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 25th of March to receive the dividend, which will be paid on the 8th of April.
Hackett Group's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Based on the last year's worth of payments, Hackett Group has a trailing yield of 2.3% on the current stock price of $17.44. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Hackett Group can afford its dividend, and if the dividend could grow.
See our latest analysis for Hackett Group
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hackett Group distributed an unsustainably high 151% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Hackett Group's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Hackett Group's earnings per share have dropped 17% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, eight years ago, Hackett Group has lifted its dividend by approximately 19% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Hackett Group is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Is Hackett Group worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out 151% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Hackett Group.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Hackett Group. To help with this, we've discovered 3 warning signs for Hackett Group that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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