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Why It Might Not Make Sense To Buy Hawaiian Electric Industries, Inc. (NYSE:HE) For Its Upcoming Dividend

·4 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hawaiian Electric Industries, Inc. (NYSE:HE) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 19th of November to receive the dividend, which will be paid on the 10th of December.

Hawaiian Electric Industries'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. Calculating the last year's worth of payments shows that Hawaiian Electric Industries has a trailing yield of 3.5% on the current share price of $37.33. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Hawaiian Electric Industries

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Hawaiian Electric Industries paid out 67% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year, it paid out dividends equivalent to 231% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Hawaiian Electric Industries intends to continue funding this dividend, or if it could be forced to cut the payment.

While Hawaiian Electric Industries's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Hawaiian Electric Industries's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Hawaiian Electric Industries earnings per share are up 3.5% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Hawaiian Electric Industries has lifted its dividend by approximately 0.6% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Hawaiian Electric Industries? Hawaiian Electric Industries is paying out a reasonable percentage of its income and an uncomfortably high 231% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Hawaiian Electric Industries and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Hawaiian Electric Industries and you should be aware of this before buying any shares.

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.

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.