H&E Equipment Services, Inc. (NASDAQ:HEES) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like H&E Equipment Services, Inc. (NASDAQ:HEES) is about to go ex-dividend in the next 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. 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 H&E Equipment Services' shares on or after the 29th of November, you won't be eligible to receive the dividend, when it is paid on the 13th of December.

The company's upcoming dividend is US$0.275 a share, following on from the last 12 months, when the company distributed a total of US$1.10 per share to shareholders. Last year's total dividend payments show that H&E Equipment Services has a trailing yield of 1.9% on the current share price of US$58.76. If you buy this business for its dividend, you should have an idea of whether H&E Equipment Services's dividend is reliable and sustainable. So we need to investigate whether H&E Equipment Services can afford its dividend, and if the dividend could grow.

View our latest analysis for H&E Equipment Services

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. H&E Equipment Services paid out a comfortable 28% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that H&E Equipment Services'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 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see H&E Equipment Services's earnings per share have risen 13% per annum over the last 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. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, H&E Equipment Services has lifted its dividend by approximately 1.0% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is H&E Equipment Services worth buying for its dividend? H&E Equipment Services 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. There's a lot to like about H&E Equipment Services, and we would prioritise taking a closer look at it.

While it's tempting to invest in H&E Equipment Services for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for H&E Equipment Services you should be aware of.

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.

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

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.