Should Income Investors Look At Insperity, Inc. (NYSE:NSP) Before Its Ex-Dividend?

Insperity, Inc. (NYSE:NSP) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 5th of June to receive the dividend, which will be paid on the 22nd of June.

Insperity’s next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$1.60 to shareholders. Based on the last year’s worth of payments, Insperity has a trailing yield of 3.1% on the current stock price of $51.84. 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.

See our latest analysis for Insperity

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. Fortunately Insperity’s payout ratio is modest, at just 38% of profit. 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. Over the past year it paid out 115% of its free cash flow as dividends, which is uncomfortably high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

Insperity paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Cash is king, as they say, and were Insperity to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.

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

NYSE:NSP Historical Dividend Yield June 1st 2020
NYSE:NSP Historical Dividend Yield June 1st 2020

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. It’s encouraging to see Insperity has grown its earnings rapidly, up 45% a year for the past five years. Earnings have been growing quickly, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Insperity has delivered an average of 20% per year annual increase in its dividend, based on the past ten years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Insperity an attractive dividend stock, or better left on the shelf? We like that Insperity has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it’s hard to get excited about Insperity from a dividend perspective.

In light of that, while Insperity has an appealing dividend, it’s worth knowing the risks involved with this stock. To help with this, we’ve discovered 2 warning signs for Insperity that you should be aware of before investing in their 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.

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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. Thank you for reading.