Hub Group, Inc. (NASDAQ:HUBG) Passed Our Checks, And It's About To Pay A US$0.125 Dividend

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 Hub Group, Inc. (NASDAQ:HUBG) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Hub Group's shares before the 18th of March in order to be eligible for the dividend, which will be paid on the 28th of March.

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 stock has a trailing yield of around 1.3% on the current share price of US$37.09. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Hub Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Hub Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Hub Group's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Hub Group generated enough free cash flow to afford its dividend. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Hub Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Hub Group's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Given that Hub Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Should investors buy Hub Group for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that 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. Generally we like to see both low payout ratios and strong earnings per share growth, but Hub Group is halfway there. There's a lot to like about Hub Group, and we would prioritise taking a closer look at it.

While it's tempting to invest in Hub Group for the dividends alone, you should always be mindful of the risks involved. For example - Hub Group has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.