Is It Smart To Buy The Hershey Company (NYSE:HSY) Before It Goes Ex-Dividend?

The Hershey Company (NYSE:HSY) is about to trade ex-dividend in the next 4 days. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Hershey's shares before the 14th of February in order to be eligible for the dividend, which will be paid on the 14th of March.

The company's upcoming dividend is US$1.37 a share, following on from the last 12 months, when the company distributed a total of US$5.48 per share to shareholders. Based on the last year's worth of payments, Hershey has a trailing yield of 3.5% on the current stock price of US$154.93. If you buy this business for its dividend, you should have an idea of whether Hershey's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Hershey

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. Hershey paid out more than half (50%) of its earnings last year, which is a regular payout ratio for most companies.

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Hershey's earnings per share have been growing at 15% a year for the past five years. Hershey has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hershey has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Hershey worth buying for its dividend? Earnings per share are growing at an attractive rate, and Hershey is paying out a bit over half its profits. Overall, Hershey looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

While it's tempting to invest in Hershey for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Hershey (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

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.