Hub Group, Inc. (NASDAQ:HUBG) Looks Interesting, And It's About To Pay A Dividend

Hub Group, Inc. (NASDAQ:HUBG) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Therefore, if you purchase Hub Group's shares on or after the 6th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of September.

The company's upcoming dividend is US$0.125 a share, following on from the last 12 months, when the company distributed a total of US$0.50 per share to shareholders. Based on the last year's worth of payments, Hub Group has a trailing yield of 1.1% on the current stock price of US$47.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Hub Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hub Group is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 6.2% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. This is why it's a relief to see Hub Group earnings per share are up 7.2% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Unfortunately Hub Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy Hub Group for the upcoming dividend? Earnings per share growth has been growing somewhat, and Hub Group 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. It might be nice to see earnings growing faster, but Hub Group is being conservative with its dividend payouts and could still perform reasonably over the long run. Hub Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Hub Group is facing. For example, we've found 1 warning sign for Hub Group that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.