Why It Might Not Make Sense To Buy HICL Infrastructure PLC (LON:HICL) For Its Upcoming Dividend

HICL Infrastructure PLC (LON:HICL) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase HICL Infrastructure's shares before the 31st of July in order to receive the dividend, which the company will pay on the 30th of September.

The company's next dividend payment will be UK£0.0208 per share, and in the last 12 months, the company paid a total of UK£0.083 per share. Calculating the last year's worth of payments shows that HICL Infrastructure has a trailing yield of 6.6% on the current share price of UK£1.252. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. An unusually high payout ratio of 362% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Check out our latest analysis for HICL Infrastructure

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that HICL Infrastructure's earnings are down 2.9% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, HICL Infrastructure has increased its dividend at approximately 1.3% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid HICL Infrastructure? Not only are earnings per share shrinking, but HICL Infrastructure is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that in mind though, if the poor dividend characteristics of HICL Infrastructure don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for HICL Infrastructure and you should be aware of these before buying any shares.

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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.