Hawkins, Inc. (NASDAQ:HWKN) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 15th of August to receive the dividend, which will be paid on the 30th of August.
Hawkins's next dividend payment will be US$0.23 per share, on the back of last year when the company paid a total of US$0.92 to shareholders. Calculating the last year's worth of payments shows that Hawkins has a trailing yield of 2.1% on the current share price of $44.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Hawkins 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. Fortunately Hawkins's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether Hawkins generated enough free cash flow to afford its dividend. Fortunately, it paid out only 31% of its free cash flow in the past year.
It's positive to see that Hawkins's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Hawkins earnings per share are up 6.6% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Hawkins has lifted its dividend by approximately 5.9% a year on average. 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
Should investors buy Hawkins for the upcoming dividend? Earnings per share have been growing moderately, and Hawkins 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. It might be nice to see earnings growing faster, but Hawkins is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Hawkins, and we would prioritise taking a closer look at it.
Want to learn more about Hawkins? Here's a visualisation of its historical rate of revenue and earnings growth.
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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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.