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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Hanesbrands Inc. (NYSE:HBI) has paid a dividend to shareholders. It currently yields 3.6%. Should it have a place in your portfolio? Let’s take a look at Hanesbrands in more detail.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How well does Hanesbrands fit our criteria?
The current trailing twelve-month payout ratio for the stock is 39%, which means that the dividend is covered by earnings. Going forward, analysts expect HBI’s payout to remain around the same level at 38% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.9%. Furthermore, EPS should increase to $1.65.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Hanesbrands as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Hanesbrands has a yield of 3.6%, which is high for Luxury stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about Hanesbrands from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for HBI’s future growth? Take a look at our free research report of analyst consensus for HBI’s outlook.
- Valuation: What is HBI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HBI is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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 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. Thank you for reading.