Is It Worth Considering HomeChoice International plc (JSE:HIL) For Its Upcoming Dividend?

By
Simply Wall St
Published
August 27, 2021
JSE:HIL
Source: Shutterstock

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 HomeChoice International plc (JSE:HIL) is about to go ex-dividend in just three 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. Therefore, if you purchase HomeChoice International's shares on or after the 1st of September, you won't be eligible to receive the dividend, when it is paid on the 6th of September.

The company's next dividend payment will be R0.47 per share, on the back of last year when the company paid a total of R0.94 to shareholders. Based on the last year's worth of payments, HomeChoice International has a trailing yield of 3.5% on the current stock price of ZAR27. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for HomeChoice International

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. Fortunately HomeChoice International's payout ratio is modest, at just 27% of profit. HomeChoice International paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see how much of its profit HomeChoice International paid out over the last 12 months.

historic-dividend
JSE:HIL Historic Dividend August 28th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see HomeChoice International's earnings per share have dropped 15% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. HomeChoice International has seen its dividend decline 8.6% per annum on average over the past six years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

From a dividend perspective, should investors buy or avoid HomeChoice International? HomeChoice International's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. We think this is a pretty attractive combination, and would be interested in investigating HomeChoice International more closely.

On that note, you'll want to research what risks HomeChoice International is facing. Be aware that HomeChoice International is showing 4 warning signs in our investment analysis, and 1 of those can't be ignored...

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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