Should You Buy HireQuest, Inc. (NASDAQ:HQI) For Its Upcoming Dividend?
HireQuest, Inc. (NASDAQ:HQI) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase HireQuest's shares before the 28th of May in order to be eligible for the dividend, which will be paid on the 15th of June.
The company's next dividend payment will be US$0.06 per share, and in the last 12 months, the company paid a total of US$0.24 per share. Calculating the last year's worth of payments shows that HireQuest has a trailing yield of 1.4% on the current share price of $17.5. If you buy this business for its dividend, you should have an idea of whether HireQuest's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for HireQuest
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HireQuest has a low and conservative payout ratio of just 16% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit HireQuest paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, HireQuest looks like a promising growth company.
Given that HireQuest has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
From a dividend perspective, should investors buy or avoid HireQuest? We love that HireQuest is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in HireQuest for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with HireQuest and understanding them should be part of your investment process.
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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