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It Might Not Be A Great Idea To Buy Hurco Companies, Inc. (NASDAQ:HURC) For Its Next Dividend

Simply Wall St

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.

Check out our latest analysis for Hurco Companies

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.

Click here to see how much of its profit Hurco Companies paid out over the last 12 months.

NasdaqGS:HURC Historical Dividend Yield, March 22nd 2020

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.

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.

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.