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Here's What We Like About Healthcare Services Group's (NASDAQ:HCSG) Upcoming Dividend

Simply Wall St
·4 min read

It looks like Healthcare Services Group, Inc. (NASDAQ:HCSG) is about to go ex-dividend in the next two days. If you purchase the stock on or after the 20th of August, you won't be eligible to receive this dividend, when it is paid on the 25th of September.

Healthcare Services Group's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.81 to shareholders. Based on the last year's worth of payments, Healthcare Services Group stock has a trailing yield of around 3.6% on the current share price of $22.66. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Healthcare Services Group

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. Healthcare Services Group paid out 75% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Healthcare Services Group generated enough free cash flow to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Healthcare Services Group'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Healthcare Services Group's earnings have been skyrocketing, up 28% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Healthcare Services Group could have strong prospects for future increases to the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Healthcare Services Group has lifted its dividend by approximately 4.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Healthcare Services Group is keeping back more of its profits to grow the business.

Final Takeaway

Should investors buy Healthcare Services Group for the upcoming dividend? We like Healthcare Services Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

Ever wonder what the future holds for Healthcare Services Group? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.