HMS Bergbau AG (ETR:HMU) Passed Our Checks, And It's About To Pay A €0.92 Dividend

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 HMS Bergbau AG (ETR:HMU) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase HMS Bergbau's shares before the 14th of August to receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be €0.92 per share, on the back of last year when the company paid a total of €0.77 to shareholders. Calculating the last year's worth of payments shows that HMS Bergbau has a trailing yield of 3.6% on the current share price of €25.40. 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 HMS Bergbau has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for HMS Bergbau

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. Fortunately HMS Bergbau's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether HMS Bergbau generated enough free cash flow to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that HMS Bergbau's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit HMS Bergbau paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see HMS Bergbau has grown its earnings rapidly, up 51% a year for the past five years. HMS Bergbau is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. HMS Bergbau has delivered an average of 380% per year annual increase in its dividend, based on the past two 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 HMS Bergbau an attractive dividend stock, or better left on the shelf? We love that HMS Bergbau is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in HMS Bergbau for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for HMS Bergbau that we recommend you consider before investing in the business.

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.