Is It Smart To Buy Hallenstein Glasson Holdings Limited (NZSE:HLG) Before It Goes Ex-Dividend?

Hallenstein Glasson Holdings Limited (NZSE:HLG) stock is about to trade ex-dividend in 4 days. You can purchase shares before the 7th of December in order to receive the dividend, which the company will pay on the 15th of December.

Hallenstein Glasson Holdings's next dividend payment will be NZ$0.28 per share. Last year, in total, the company distributed NZ$0.39 to shareholders. Last year's total dividend payments show that Hallenstein Glasson Holdings has a trailing yield of 5.6% on the current share price of NZ$6.94. 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 Hallenstein Glasson Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for Hallenstein Glasson Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Hallenstein Glasson Holdings generated enough free cash flow to afford its dividend. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Hallenstein Glasson Holdings'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 Hallenstein Glasson Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Hallenstein Glasson Holdings, with earnings per share up 9.8% on average over the last five years. Decent historical earnings per share growth suggests Hallenstein Glasson Holdings has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Hallenstein Glasson Holdings has lifted its dividend by approximately 3.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Hallenstein Glasson Holdings got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Hallenstein Glasson Holdings's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Hallenstein Glasson Holdings today.

So while Hallenstein Glasson Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Hallenstein Glasson Holdings that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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