We Wouldn't Be Too Quick To Buy Hillenbrand, Inc. (NYSE:HI) Before It Goes Ex-Dividend

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 four 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Hillenbrand investors that purchase the stock on or after the 14th of March will not receive the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be US$0.225 per share. Last year, in total, the company distributed US$0.90 to shareholders. Last year's total dividend payments show that Hillenbrand has a trailing yield of 3.3% on the current share price of US$27.53. If you buy this business for its dividend, you should have an idea of whether Hillenbrand's dividend is reliable and sustainable. As a result, readers should always check whether Hillenbrand has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Hillenbrand

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. Hillenbrand reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 49% of its free cash flow in the past year.

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

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. Hillenbrand reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Hillenbrand has lifted its dividend by approximately 1.3% a year on average.

Remember, you can always get a snapshot of Hillenbrand's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Hillenbrand for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Hillenbrand has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Hillenbrand. To that end, you should learn about the 2 warning signs we've spotted with Hillenbrand (including 1 which is concerning).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.