Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Greenhill & Co., Inc. (NYSE:GHL) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 2nd of March will not receive the dividend, which will be paid on the 17th of March.
Greenhill's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Calculating the last year's worth of payments shows that Greenhill has a trailing yield of 1.4% on the current share price of $14.76. If you buy this business for its dividend, you should have an idea of whether Greenhill's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Greenhill has a low and conservative payout ratio of just 12% of its income after tax.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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. For this reason, we're glad to see Greenhill's earnings per share have risen 15% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Greenhill has seen its dividend decline 20% per annum on average over the past 10 years, which is not great to see. Greenhill is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
From a dividend perspective, should investors buy or avoid Greenhill? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Greenhill more closely.
While it's tempting to invest in Greenhill for the dividends alone, you should always be mindful of the risks involved. For example, we've found 4 warning signs for Greenhill (1 can't be ignored!) that deserve your attention before investing in the shares.
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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