Interested In HNI's (NYSE:HNI) Upcoming US$0.31 Dividend? You Have Three Days Left

Readers hoping to buy HNI Corporation (NYSE:HNI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase HNI's shares on or after the 19th of August, you won't be eligible to receive the dividend, when it is paid on the 1st of September.

The company's next dividend payment will be US$0.31 per share, on the back of last year when the company paid a total of US$1.24 to shareholders. Based on the last year's worth of payments, HNI stock has a trailing yield of around 3.2% on the current share price of $39.35. If you buy this business for its dividend, you should have an idea of whether HNI's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for HNI

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HNI is paying out an acceptable 62% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether HNI generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that HNI'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?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see HNI's earnings per share have been shrinking at 3.5% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. HNI has delivered 3.7% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Has HNI got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

So if you want to do more digging on HNI, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 1 warning sign for HNI that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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. 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.
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