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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Hillenbrand, Inc. (NYSE:HI) has paid a dividend to shareholders. It currently yields 1.8%. Let’s dig deeper into whether Hillenbrand should have a place in your portfolio.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How does Hillenbrand fare?
The current trailing twelve-month payout ratio for the stock is 60%, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. HI has increased its DPS from $0.74 to $0.84 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Hillenbrand has a yield of 1.8%, which is on the low-side for Machinery stocks.
With these dividend metrics in mind, I definitely rank Hillenbrand as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for HI’s future growth? Take a look at our free research report of analyst consensus for HI’s outlook.
- Valuation: What is HI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HI is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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.
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. Thank you for reading.