Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Höegh LNG Holdings Ltd. (OB:HLNG) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 5th of March will not receive the dividend, which will be paid on the 19th of March.
Höegh LNG Holdings's next dividend payment will be kr0.025 per share, and in the last 12 months, the company paid a total of kr0.10 per share. Based on the last year's worth of payments, Höegh LNG Holdings stock has a trailing yield of around 4.5% on the current share price of NOK20.9. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Höegh LNG Holdings lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Höegh LNG Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 19% of its free cash flow in the last year.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Höegh LNG Holdings was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Höegh LNG Holdings also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Höegh LNG Holdings has seen its dividend decline 24% per annum on average over the past five years, which is not great to see.
Remember, you can always get a snapshot of Höegh LNG Holdings's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Höegh LNG Holdings? It's hard to get used to Höegh LNG Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Curious what other investors think of Höegh LNG Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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