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Don't Race Out To Buy Helmerich & Payne, Inc. (NYSE:HP) Just Because It's Going Ex-Dividend

Simply Wall St

It looks like Helmerich & Payne, Inc. (NYSE:HP) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 9th of August, you won't be eligible to receive this dividend, when it is paid on the 3rd of September.

Helmerich & Payne's next dividend payment will be US$0.71 per share. Last year, in total, the company distributed US$2.84 to shareholders. Based on the last year's worth of payments, Helmerich & Payne has a trailing yield of 6.2% on the current stock price of $46.13. If you buy this business for its dividend, you should have an idea of whether Helmerich & Payne's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Helmerich & Payne

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Helmerich & Payne reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 110% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:HP Historical Dividend Yield, August 4th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Helmerich & Payne was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Helmerich & Payne has delivered an average of 30% per year annual increase in its dividend, based on the past 10 years of dividend payments.

We update our analysis on Helmerich & Payne every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is Helmerich & Payne worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Helmerich & Payne.

Ever wonder what the future holds for Helmerich & Payne? See what the 23 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.