Don't Race Out To Buy Huntsman Corporation (NYSE:HUN) Just Because It's Going Ex-Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Huntsman Corporation (NYSE:HUN) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Huntsman's shares before the 14th of December in order to be eligible for the dividend, which will be paid on the 29th of December.
The company's next dividend payment will be US$0.24 per share, and in the last 12 months, the company paid a total of US$0.95 per share. Based on the last year's worth of payments, Huntsman has a trailing yield of 3.8% on the current stock price of $24.97. If you buy this business for its dividend, you should have an idea of whether Huntsman's dividend is reliable and sustainable. So we need to investigate whether Huntsman can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Huntsman
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Huntsman's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. Over the past year it paid out 138% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Huntsman 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Huntsman has increased its dividend at approximately 6.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Remember, you can always get a snapshot of Huntsman's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
Is Huntsman 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." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of Huntsman don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Huntsman you should know about.
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.
