Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Haynes International, Inc. (NASDAQ:HAYN) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 29th of August, you won't be eligible to receive this dividend, when it is paid on the 16th of September.
Haynes International's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.88 per share. Based on the last year's worth of payments, Haynes International has a trailing yield of 3.0% on the current stock price of $28.89. If you buy this business for its dividend, you should have an idea of whether Haynes International's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Haynes International distributed an unsustainably high 191% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Haynes International generated enough free cash flow to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Haynes International fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Haynes International's earnings per share have fallen at approximately 23% a year over the previous 5 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. Haynes International has delivered 1.0% dividend growth per year on average over the past 10 years.
Should investors buy Haynes International for the upcoming dividend? It's never fun to see a company's earnings per share in retreat. Additionally, Haynes International is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Wondering what the future holds for Haynes International? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.