Should You Buy Hiscox Ltd (LON:HSX) For Its Upcoming Dividend?
It looks like Hiscox Ltd (LON:HSX) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Hiscox's shares on or after the 17th of August will not receive the dividend, which will be paid on the 26th of September.
The company's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.36 to shareholders. Looking at the last 12 months of distributions, Hiscox has a trailing yield of approximately 2.6% on its current stock price of £10.7. 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 check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Hiscox
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. Hiscox paid out a comfortable 49% of its profit last year.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. It's encouraging to see Hiscox has grown its earnings rapidly, up 44% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hiscox has seen its dividend decline 0.6% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
Should investors buy Hiscox for the upcoming dividend? Companies like Hiscox that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, Hiscox appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
In light of that, while Hiscox has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Hiscox and you should be aware of this before buying any shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
