It looks like Hurco Companies, Inc. (NASDAQ:HURC) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 27th of March to receive the dividend, which will be paid on the 13th of April.
Hurco Companies's next dividend payment will be US$0.13 per share, on the back of last year when the company paid a total of US$0.52 to shareholders. Calculating the last year's worth of payments shows that Hurco Companies has a trailing yield of 2.2% on the current share price of $23.48. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Hurco Companies can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Hurco Companies paid out a comfortable 33% of its profit last year. 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.
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. With that in mind, we're discomforted by Hurco Companies's 8.9% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past seven years, Hurco Companies has increased its dividend at approximately 15% a year on average.
The Bottom Line
Is Hurco Companies an attractive dividend stock, or better left on the shelf? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Hurco Companies is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. Bottom line: Hurco Companies has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
So if you're still interested in Hurco Companies despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 3 warning signs with Hurco Companies and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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