Here's What We Like About HORNBACH Holding KGaA's (ETR:HBH) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HORNBACH Holding AG & Co. KGaA (ETR:HBH) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase HORNBACH Holding KGaA's shares before the 8th of July in order to receive the dividend, which the company will pay on the 10th of July.

The company's next dividend payment will be €2.40 per share, on the back of last year when the company paid a total of €2.40 to shareholders. Based on the last year's worth of payments, HORNBACH Holding KGaA stock has a trailing yield of around 3.0% on the current share price of €80.70. 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.

View our latest analysis for HORNBACH Holding KGaA

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HORNBACH Holding KGaA has a low and conservative payout ratio of just 25% of its income after tax. A useful secondary check can be to evaluate whether HORNBACH Holding KGaA generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, HORNBACH Holding KGaA's earnings per share have been growing at 19% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, HORNBACH Holding KGaA has lifted its dividend by approximately 6.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy HORNBACH Holding KGaA for the upcoming dividend? HORNBACH Holding KGaA has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

In light of that, while HORNBACH Holding KGaA has an appealing dividend, it's worth knowing the risks involved with this stock. For example - HORNBACH Holding KGaA has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com