It looks like Hubbell Incorporated (NYSE:HUBB) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Hubbell's shares before the 29th of November in order to be eligible for the dividend, which will be paid on the 15th of December.
The company's next dividend payment will be US$1.12 per share, and in the last 12 months, the company paid a total of US$4.48 per share. Looking at the last 12 months of distributions, Hubbell has a trailing yield of approximately 1.7% on its current stock price of $256.08. If you buy this business for its dividend, you should have an idea of whether Hubbell'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 from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Hubbell's payout ratio is modest, at just 47% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 47% of its free cash flow in the past year.
It's positive to see that Hubbell'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?
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. Fortunately for readers, Hubbell's earnings per share have been growing at 11% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Hubbell has increased its dividend at approximately 11% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy Hubbell for the upcoming dividend? We love that Hubbell is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
So while Hubbell looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for Hubbell you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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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