Three Days Left To Buy Hilton Food Group plc (LON:HFG) Before The Ex-Dividend Date

It looks like Hilton Food Group plc (LON:HFG) is about to go ex-dividend in the next three 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. 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. Therefore, if you purchase Hilton Food Group's shares on or after the 30th of May, you won't be eligible to receive the dividend, when it is paid on the 28th of June.

The company's next dividend payment will be UK£0.23 per share, on the back of last year when the company paid a total of UK£0.32 to shareholders. Looking at the last 12 months of distributions, Hilton Food Group has a trailing yield of approximately 3.4% on its current stock price of UK£9.38. If you buy this business for its dividend, you should have an idea of whether Hilton Food Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Hilton Food Group

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. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 26% of its free cash flow in the past 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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Hilton Food Group's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 79% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Hilton Food Group could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Hilton Food Group has lifted its dividend by approximately 9.6% a year on average.

The Bottom Line

Should investors buy Hilton Food Group for the upcoming dividend? It's unfortunate that earnings per share have not grown, and we'd note that Hilton Food Group is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in Hilton Food Group for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Hilton Food Group 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.