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 HT&E Limited (ASX:HT1) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 20th of August will not receive the dividend, which will be paid on the 13th of September.
HT&E's upcoming dividend is AU$0.04 a share, following on from the last 12 months, when the company distributed a total of AU$0.07 per share to shareholders. Last year's total dividend payments show that HT&E has a trailing yield of 4.1% on the current share price of A$1.71. If you buy this business for its dividend, you should have an idea of whether HT&E's dividend is reliable and sustainable. So we need to investigate whether HT&E can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HT&E is paying out an acceptable 66% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 86% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that HT&E'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 falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. HT&E's earnings per share have fallen at approximately 24% a year over the previous 5 years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. HT&E's dividend payments per share have declined at 27% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Is HT&E worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least HT&E's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Curious what other investors think of HT&E? See what analysts 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.