Hamilton Beach Brands Holding (NYSE:HBB) Could Be A Buy For Its Upcoming Dividend

Hamilton Beach Brands Holding Company (NYSE:HBB) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Hamilton Beach Brands Holding's shares on or after the 3rd of March will not receive the dividend, which will be paid on the 14th of March.

The company's next dividend payment will be US$0.115 per share, and in the last 12 months, the company paid a total of US$0.46 per share. Last year's total dividend payments show that Hamilton Beach Brands Holding has a trailing yield of 2.5% on the current share price of US$18.06. If you buy this business for its dividend, you should have an idea of whether Hamilton Beach Brands Holding's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Hamilton Beach Brands Holding

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. Hamilton Beach Brands Holding paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Hamilton Beach Brands Holding generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

It's positive to see that Hamilton Beach Brands Holding'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 how much of its profit Hamilton Beach Brands Holding paid out over the last 12 months.

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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Hamilton Beach Brands Holding, with earnings per share up 2.7% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hamilton Beach Brands Holding has delivered 4.4% dividend growth per year on average over the past seven years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Hamilton Beach Brands Holding for the upcoming dividend? Earnings per share growth has been growing somewhat, and Hamilton Beach Brands Holding is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Hamilton Beach Brands Holding is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Curious about whether Hamilton Beach Brands Holding has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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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.