Dividend Investors: Don't Be Too Quick To Buy DHT Holdings, Inc. (NYSE:DHT) For Its Upcoming Dividend

Readers hoping to buy DHT Holdings, Inc. (NYSE:DHT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase DHT Holdings' shares before the 18th of May to receive the dividend, which will be paid on the 26th of May.

The company's next dividend payment will be US$0.02 per share. Last year, in total, the company distributed US$0.10 to shareholders. Calculating the last year's worth of payments shows that DHT Holdings has a trailing yield of 1.8% on the current share price of $5.45. If you buy this business for its dividend, you should have an idea of whether DHT Holdings'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 DHT Holdings

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. DHT Holdings lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If DHT Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. DHT Holdings reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. DHT Holdings has seen its dividend decline 32% per annum on average over the past 10 years, which is not great to see.

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

Final Takeaway

Should investors buy DHT Holdings for the upcoming dividend? It's hard to get used to DHT Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. All things considered, we are not particularly enthused about DHT Holdings from a dividend perspective.

If you're not too concerned about DHT Holdings's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 2 warning signs for DHT Holdings (of which 1 is significant!) you should know about.

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.