Is It Worth Considering JB Hi-Fi Limited (ASX:JBH) For Its Upcoming Dividend?

JB Hi-Fi Limited (ASX:JBH) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase JB Hi-Fi's shares on or after the 22nd of February will not receive the dividend, which will be paid on the 8th of March.

The company's next dividend payment will be AU$1.58 per share, and in the last 12 months, the company paid a total of AU$3.12 per share. Last year's total dividend payments show that JB Hi-Fi has a trailing yield of 4.8% on the current share price of AU$64.46. 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 investigate whether JB Hi-Fi can afford its dividend, and if the dividend could grow.

Check out our latest analysis for JB Hi-Fi

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. JB Hi-Fi paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether JB Hi-Fi generated enough free cash flow to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

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.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see JB Hi-Fi's earnings per share have risen 16% per annum over the last five years. JB Hi-Fi is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. JB Hi-Fi has delivered 16% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has JB Hi-Fi got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that JB Hi-Fi is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's hard to get excited about JB Hi-Fi from a dividend perspective.

While it's tempting to invest in JB Hi-Fi for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with JB Hi-Fi (at least 1 which is concerning), and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.