Don't Buy Hurco Companies, Inc. (NASDAQ:HURC) For Its Next Dividend Without Doing These Checks
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hurco Companies, Inc. (NASDAQ:HURC) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Hurco Companies' shares before the 31st of December to receive the dividend, which will be paid on the 17th of January.
The company's next dividend payment will be US$0.14 per share, and in the last 12 months, the company paid a total of US$0.56 per share. Calculating the last year's worth of payments shows that Hurco Companies has a trailing yield of 1.9% on the current share price of $29.67. If you buy this business for its dividend, you should have an idea of whether Hurco Companies's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Hurco Companies
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. Hurco Companies paid out a disturbingly high 334% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. A useful secondary check can be to evaluate whether Hurco Companies generated enough free cash flow to afford its dividend. It paid out 10% of its free cash flow as dividends last year, which is conservatively low.
It's good to see that while Hurco Companies's dividends were not covered by profits, at least they are affordable from a cash perspective. 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.
Click here to see how much of its profit Hurco Companies paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Hurco Companies's earnings per share have plummeted approximately 42% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hurco Companies has delivered an average of 12% per year annual increase in its dividend, based on the past nine years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Hurco Companies is already paying out 334% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
From a dividend perspective, should investors buy or avoid Hurco Companies? It's not a great combination to see a company with earnings in decline and paying out 334% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Hurco Companies's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Hurco Companies and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 3 warning signs we've spotted with Hurco Companies (including 1 which doesn't sit too well with us).
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.
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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.
