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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hillenbrand, Inc. (NYSE:HI) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 16th of March will not receive this dividend, which will be paid on the 31st of March.
Hillenbrand's next dividend payment will be US$0.21 per share. Last year, in total, the company distributed US$0.85 to shareholders. Looking at the last 12 months of distributions, Hillenbrand has a trailing yield of approximately 3.9% on its current stock price of $21.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. Hillenbrand paid out 60% of its earnings to investors last year, a normal payout level for most businesses. 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. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Hillenbrand's earnings are down 4.2% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hillenbrand has delivered an average of 1.4% per year annual increase in its dividend, based on the past ten years of dividend payments.
Is Hillenbrand worth buying for its dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. All things considered, we are not particularly enthused about Hillenbrand from a dividend perspective.
However if you're still interested in Hillenbrand as a potential investment, you should definitely consider some of the risks involved with Hillenbrand. To that end, you should learn about the 4 warning signs we've spotted with Hillenbrand (including 1 which makes us a bit uncomfortable).
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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 email@example.com. 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.
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. Thank you for reading.