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 Helmerich & Payne, Inc. (NYSE:HP) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 14th of May will not receive the dividend, which will be paid on the 1st of June.
Helmerich & Payne's next dividend payment will be US$0.25 per share, and in the last 12 months, the company paid a total of US$1.00 per share. Looking at the last 12 months of distributions, Helmerich & Payne has a trailing yield of approximately 3.3% on its current stock price of $30.22. If you buy this business for its dividend, you should have an idea of whether Helmerich & Payne's dividend is reliable and sustainable. So we need to investigate whether Helmerich & Payne can afford its dividend, and if the dividend could grow.
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. Helmerich & Payne's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Helmerich & Payne reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Helmerich & Payne has increased its dividend at approximately 15% a year on average.
Remember, you can always get a snapshot of Helmerich & Payne's financial health, by checking our visualisation of its financial health, here.
From a dividend perspective, should investors buy or avoid Helmerich & Payne? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Helmerich & Payne. We've identified 2 warning signs with Helmerich & Payne (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.
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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