Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that HollyFrontier Corporation (NYSE:HFC) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 21st of August will not receive the dividend, which will be paid on the 4th of September.
HollyFrontier's next dividend payment will be US$0.33 per share, on the back of last year when the company paid a total of US$1.32 to shareholders. Last year's total dividend payments show that HollyFrontier has a trailing yield of 3.0% on the current share price of $44.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether HollyFrontier has been able to grow its dividends, or if the dividend might be cut.
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. HollyFrontier has a low and conservative payout ratio of just 24% of its income after tax. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 HollyFrontier, with earnings per share up 8.2% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. HollyFrontier has delivered 16% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is HollyFrontier worth buying for its dividend? Earnings per share have been growing moderately, and HollyFrontier is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and HollyFrontier is halfway there. There's a lot to like about HollyFrontier, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for HollyFrontier? See what the 14 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.