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It Might Be Better To Avoid Hawaiian Electric Industries, Inc.'s (NYSE:HE) Upcoming 0.7% Dividend

Simply Wall St

It looks like Hawaiian Electric Industries, Inc. (NYSE:HE) is about to go ex-dividend in the next 4 days. You can purchase shares before the 21st of November in order to receive the dividend, which the company will pay on the 10th of December.

Hawaiian Electric Industries's next dividend payment will be US$0.32 per share, and in the last 12 months, the company paid a total of US$1.28 per share. Based on the last year's worth of payments, Hawaiian Electric Industries has a trailing yield of 2.9% on the current stock price of $43.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Hawaiian Electric Industries

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. Hawaiian Electric Industries paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 147% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Hawaiian Electric Industries'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. Were this to happen repeatedly, this would be a risk to Hawaiian Electric Industries's ability to maintain its dividend.

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

NYSE:HE Historical Dividend Yield, November 16th 2019

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Hawaiian Electric Industries, with earnings per share up 2.5% on average over the last five years. Earnings have been growing somewhat, 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. Hawaiian Electric Industries's dividend payments are effectively flat on where they were ten years ago.

The Bottom Line

Should investors buy Hawaiian Electric Industries for the upcoming dividend? Hawaiian Electric Industries is paying out a reasonable percentage of its income and an uncomfortably high 147% of its cash flow as dividends. At least earnings per share have been growing steadily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Hawaiian Electric Industries.

Wondering what the future holds for Hawaiian Electric Industries? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top 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.