Don't Buy Hillenbrand, Inc. (NYSE:HI) For Its Next Dividend Without Doing These Checks

By
Simply Wall St
Published
March 11, 2021
NYSE:HI

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hillenbrand, Inc. (NYSE:HI) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 16th of March to receive the dividend, which will be paid on the 31st of March.

Hillenbrand's upcoming dividend is US$0.21 a share, following on from the last 12 months, when the company distributed a total of US$0.86 per share to shareholders. Looking at the last 12 months of distributions, Hillenbrand has a trailing yield of approximately 1.7% on its current stock price of $51.33. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hillenbrand can afford its dividend, and if the dividend could grow.

See our latest analysis for Hillenbrand

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. Last year, Hillenbrand paid out 330% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

It's good to see that while Hillenbrand's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:HI Historic Dividend March 11th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Hillenbrand's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 32% 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. Hillenbrand has delivered an average of 1.4% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Hillenbrand an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 330% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Hillenbrand's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not that we think Hillenbrand is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Hillenbrand despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 6 warning signs for Hillenbrand that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top 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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