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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hamilton Lane Incorporated (NASDAQ:HLNE) 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 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 Hamilton Lane's shares before the 14th of September in order to be eligible for the dividend, which will be paid on the 6th of October.
The company's next dividend payment will be US$0.35 per share, on the back of last year when the company paid a total of US$1.40 to shareholders. Last year's total dividend payments show that Hamilton Lane has a trailing yield of 1.7% on the current share price of $84.75. If you buy this business for its dividend, you should have an idea of whether Hamilton Lane's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see Hamilton Lane paying out a modest 38% of its earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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. It's encouraging to see Hamilton Lane has grown its earnings rapidly, up 54% a year for the past five years.
We'd also point out that Hamilton Lane issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hamilton Lane has delivered 19% dividend growth per year on average over the past four years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
From a dividend perspective, should investors buy or avoid Hamilton Lane? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Hamilton Lane appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
So while Hamilton Lane looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Hamilton Lane and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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