Should Income Investors Look At Helloworld Travel Limited (ASX:HLO) Before Its Ex-Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Helloworld Travel Limited (ASX:HLO) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 30th of August to receive the dividend, which will be paid on the 17th of September.
Helloworld Travel's next dividend payment will be AU$0.13 per share, on the back of last year when the company paid a total of AU$0.20 to shareholders. Looking at the last 12 months of distributions, Helloworld Travel has a trailing yield of approximately 4.7% on its current stock price of A$4.34. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Helloworld Travel can afford its dividend, and if the dividend could grow.
See our latest analysis for Helloworld Travel
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. Helloworld Travel is paying out an acceptable 65% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Helloworld Travel generated enough free cash flow to afford its dividend. Over the past year it paid out 180% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Helloworld Travel does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Helloworld Travel's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Helloworld Travel to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. It's encouraging to see Helloworld Travel has grown its earnings rapidly, up 63% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Helloworld Travel has delivered 6.9% dividend growth per year on average over the past 8 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Helloworld Travel an attractive dividend stock, or better left on the shelf? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 180% of its cashflow, which is uncomfortably high. To summarise, Helloworld Travel looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Ever wonder what the future holds for Helloworld Travel? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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 editorial-team@simplywallst.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. Thank you for reading.
