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 Hilton Food Group plc (LON:HFG) is about to go ex-dividend in just four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Accordingly, Hilton Food Group investors that purchase the stock on or after the 31st of October will not receive the dividend, which will be paid on the 29th of November.
The company’s next dividend payment will be UK£0.096 per share, and in the last 12 months, the company paid a total of UK£0.42 per share. Last year’s total dividend payments show that Hilton Food Group has a trailing yield of 4.5% on the current share price of UK£9.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Hilton Food Group
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. Hilton Food Group paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.
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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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 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 Hilton Food Group earnings per share are up 5.3% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it’s unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.