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Is It Worth Considering Hipgnosis Songs Fund Limited (LON:SONG) For Its Upcoming Dividend?

Simply Wall St

Hipgnosis Songs Fund Limited (LON:SONG) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 1st of August in order to receive the dividend, which the company will pay on the 30th of August.

Hipgnosis Songs Fund's next dividend payment will be UK£0.013 per share. Last year, in total, the company distributed UK£0.05 to shareholders. Based on the last year's worth of payments, Hipgnosis Songs Fund stock has a trailing yield of around 4.7% on the current share price of £1.06. 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 Hipgnosis Songs Fund has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Hipgnosis Songs Fund

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hipgnosis Songs Fund distributed an unsustainably high 193% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit Hipgnosis Songs Fund paid out over the last 12 months.

LSE:SONG Historical Dividend Yield, July 27th 2019

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time.

Hipgnosis Songs Fund also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Unfortunately Hipgnosis Songs Fund has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Has Hipgnosis Songs Fund got what it takes to maintain its dividend payments? Hipgnosis Songs Fund's earnings have barely moved in recent times, and the company is paying out a disagreeably high percentage of its earnings; a mediocre combination. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Want to learn more about Hipgnosis Songs Fund? 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.

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.

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. Thank you for reading.