It looks like Heidrick & Struggles International, Inc. (NASDAQ:HSII) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 5th of March will not receive this dividend, which will be paid on the 20th of March.
Heidrick & Struggles International's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Based on the last year's worth of payments, Heidrick & Struggles International stock has a trailing yield of around 2.7% on the current share price of $22.3. If you buy this business for its dividend, you should have an idea of whether Heidrick & Struggles International's dividend is reliable and sustainable. As a result, readers should always check whether Heidrick & Struggles International has been able to grow its dividends, or if the dividend might be cut.
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. Heidrick & Struggles International paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Heidrick & Struggles International generated enough free cash flow to afford its dividend. Luckily it paid out just 15% of its free cash flow last year.
It's positive to see that Heidrick & Struggles International'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Heidrick & Struggles International's earnings have been skyrocketing, up 46% per annum for the past five years. Heidrick & Struggles International earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Heidrick & Struggles International has lifted its dividend by approximately 1.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Heidrick & Struggles International is keeping back more of its profits to grow the business.
The Bottom Line
From a dividend perspective, should investors buy or avoid Heidrick & Struggles International? Heidrick & Struggles International has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
Wondering what the future holds for Heidrick & Struggles International? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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.
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