It looks like Heidrick & Struggles International, Inc. (NASDAQ:HSII) is about to go ex-dividend in the next 4 days. You can purchase shares before the 5th of November in order to receive the dividend, which the company will pay on the 20th of November.
Heidrick & Struggles International's upcoming dividend is US$0.15 a share, following on from the last 12 months, when the company distributed a total of US$0.60 per share to shareholders. Based on the last year's worth of payments, Heidrick & Struggles International stock has a trailing yield of around 2.6% on the current share price of $22.85. If you buy this business for its dividend, you should have an idea of whether Heidrick & Struggles International's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Heidrick & Struggles International reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. 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. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Heidrick & Struggles International reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Heidrick & Struggles International has delivered an average of 1.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Heidrick & Struggles International is keeping back more of its profits to grow the business.
We update our analysis on Heidrick & Struggles International every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is Heidrick & Struggles International worth buying for its dividend? 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." It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So while Heidrick & Struggles International looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Heidrick & Struggles International you should be aware of.
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.
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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