Hallenstein Glasson Holdings Limited (NZSE:HLG) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 9th of December in order to receive the dividend, which the company will pay on the 17th of December.
Hallenstein Glasson Holdings's next dividend payment will be NZ$0.28 per share. Last year, in total, the company distributed NZ$0.44 to shareholders. Calculating the last year's worth of payments shows that Hallenstein Glasson Holdings has a trailing yield of 6.8% on the current share price of NZ$6.48. 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! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Hallenstein Glasson Holdings paid out 90% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Hallenstein Glasson Holdings generated enough free cash flow to afford its dividend. Hallenstein Glasson Holdings paid out more free cash flow than it generated - 166%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Hallenstein Glasson Holdings's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Hallenstein Glasson Holdings's earnings per share have risen 15% per annum over the last five years. We're a bit put out by the fact that Hallenstein Glasson Holdings paid out virtually all of its earnings and cashflow as dividends over the last year. Earnings are growing at a decent clip, so this payout ratio may prove sustainable, but it's not great to see.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hallenstein Glasson Holdings has delivered 8.2% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Should investors buy Hallenstein Glasson Holdings for the upcoming dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not that we think Hallenstein Glasson Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Curious about whether Hallenstein Glasson Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.