Hilton Food Group plc (LON:HFG) Goes Ex-Dividend Soon
The company's next dividend payment will be UK£0.249 per share, and in the last 12 months, the company paid a total of UK£0.34 per share. Last year's total dividend payments show that Hilton Food Group has a trailing yield of 3.9% on the current share price of UK£8.92. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 59% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Hilton Food 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.
View our latest analysis for Hilton Food Group
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Hilton Food Group's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A payout ratio of 79% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Hilton Food Group has lifted its dividend by approximately 10% a year on average.
From a dividend perspective, should investors buy or avoid Hilton Food Group? Earnings per share have barely grown, and although Hilton Food Group paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Hilton Food Group's dividend merits.
With that being said, if dividends aren't your biggest concern with Hilton Food Group, you should know about the other risks facing this business. For example, Hilton Food Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
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