Yahoo Finance Don't Race Out To Buy Hearts and Minds Investments Limited (ASX:HM1) Just Because It's Going Ex-Dividend
Hearts and Minds Investments Limited (ASX:HM1) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Hearts and Minds Investments' shares on or after the 6th of March, you won't be eligible to receive the dividend, when it is paid on the 18th of April.
The company's next dividend payment will be AU$0.07 per share, on the back of last year when the company paid a total of AU$0.14 to shareholders. Calculating the last year's worth of payments shows that Hearts and Minds Investments has a trailing yield of 5.3% on the current share price of AU$2.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Hearts and Minds Investments has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Hearts and Minds Investments
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. Hearts and Minds Investments distributed an unsustainably high 141% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see how much of its profit Hearts and Minds Investments paid out over the last 12 months.
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. That's why it's not ideal to see Hearts and Minds Investments's earnings per share have been shrinking at 3.7% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hearts and Minds Investments has delivered an average of 5.3% per year annual increase in its dividend, based on the past three years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Hearts and Minds Investments is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
Final Takeaway
From a dividend perspective, should investors buy or avoid Hearts and Minds Investments? Earnings per share are in decline and Hearts and Minds Investments is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Hearts and Minds Investments. Case in point: We've spotted 1 warning sign for Hearts and Minds Investments you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.
