Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see H&E Equipment Services, Inc. (NASDAQ:HEES) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 22nd of November to receive the dividend, which will be paid on the 13th of December.
H&E Equipment Services's upcoming dividend is US$0.28 a share, following on from the last 12 months, when the company distributed a total of US$1.10 per share to shareholders. Last year's total dividend payments show that H&E Equipment Services has a trailing yield of 3.1% on the current share price of $35.07. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Fortunately H&E Equipment Services's payout ratio is modest, at just 44% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that H&E Equipment Services's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, H&E Equipment Services's earnings per share have been growing at 15% a year for the past five years. H&E Equipment Services has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, five years ago, H&E Equipment Services has lifted its dividend by approximately 1.9% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Should investors buy H&E Equipment Services for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for H&E Equipment Services? See what the six 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.