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 Haynes International, Inc. (NASDAQ:HAYN) is about to go ex-dividend in just four days. Investors can purchase shares before the 31st of August in order to be eligible for this dividend, which will be paid on the 15th of September.
Haynes International's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.88 per share. Based on the last year's worth of payments, Haynes International stock has a trailing yield of around 4.3% on the current share price of $20.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Haynes International paid out 210% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. A useful secondary check can be to evaluate whether Haynes International generated enough free cash flow to afford its dividend. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Haynes International's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Haynes International, with earnings per share up 6.7% on average over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Haynes International has lifted its dividend by approximately 1.0% a year on average.
To Sum It Up
Is Haynes International an attractive dividend stock, or better left on the shelf? Haynes International has been slowly growing its earnings per share, and it has interesting dividend payout behaviour that we think is worth highlighting. Specifically, it's paying out just 45% of its cash flow but a huge 210% of its income. This is a interesting combination, but the high payout ratio is a definite concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
With that being said, if dividends aren't your biggest concern with Haynes International, you should know about the other risks facing this business. Be aware that Haynes International is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
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. 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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