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Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Herman Miller, Inc. (NASDAQ:MLHR) is about to hit its ex-dividend date. Ex-dividend means that investors that purchase the stock on or after the 30th of May will not receive this dividend, which will be paid on the 15th of July.
Herman Miller’s upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.79 per share to shareholders. Based on the last year’s worth of payments, Herman Miller stock has a trailing yield of around 2.1% on the current share price of $37.64. If you buy this business for its dividend, you should have an idea of whether Herman Miller’s dividend is reliable and sustainable. As a result, readers should always check whether Herman Miller has been able to grow its dividends, or if the dividend might be cut.
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. Herman Miller paid out a comfortable 31% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 43% of its free cash flow in the past year.
It’s positive to see that Herman Miller’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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we’re glad to see Herman Miller’s earnings per share have risen 16% per annum over the last five years.
The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
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, Herman Miller has lifted its dividend by approximately 25% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Has Herman Miller got what it takes to maintain its dividend payments? We love that Herman Miller is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It’s a promising combination that should mark this company worthy of closer attention.
Ever wonder what professionals think the future holds for Herman Miller? See what the three analysts we track are forecasting , with this visualisation of its historical and future estimated earnings and cash flow
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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.