Dividend Investors: Don't Be Too Quick To Buy Heidrick & Struggles International, Inc. (NASDAQ:HSII) For Its Upcoming Dividend
Readers hoping to buy Heidrick & Struggles International, Inc. (NASDAQ:HSII) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 4th of March in order to be eligible for this dividend, which will be paid on the 19th of March.
Heidrick & Struggles International's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Calculating the last year's worth of payments shows that Heidrick & Struggles International has a trailing yield of 1.7% on the current share price of $35.89. 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 investigate whether Heidrick & Struggles International can afford its dividend, and if the dividend could grow.
View our latest analysis for Heidrick & Struggles International
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Heidrick & Struggles International reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Heidrick & Struggles International 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. It paid out 75% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Heidrick & Struggles International reported a loss last year, but at least the general trend suggests its income has 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Heidrick & Struggles International has lifted its dividend by approximately 1.4% a year on average.
Remember, you can always get a snapshot of Heidrick & Struggles International's financial health, by checking our visualisation of its financial health, here.
Final Takeaway
From a dividend perspective, should investors buy or avoid Heidrick & Struggles International? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that in mind though, if the poor dividend characteristics of Heidrick & Struggles International don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with Heidrick & Struggles International 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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