Yahoo Finance Here's Why We're Wary Of Buying Heidrick & Struggles International's (NASDAQ:HSII) For Its Upcoming Dividend
Heidrick & Struggles International, Inc. (NASDAQ:HSII) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 6th of May in order to be eligible for this dividend, which will be paid on the 21st of May.
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 1.4% on the current share price of $42.3. 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 investigate whether Heidrick & Struggles International can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Heidrick & Struggles International
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Heidrick & Struggles International lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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. Fortunately, it paid out only 30% of its free cash flow in the past year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Heidrick & Struggles International was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Heidrick & Struggles International has lifted its dividend by approximately 1.4% a year on average.
Remember, you can always get a snapshot of Heidrick & Struggles International's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is Heidrick & Struggles International an attractive dividend stock, or better left on the shelf? It's hard to get used to Heidrick & Struggles International paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Heidrick & Struggles International despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 2 warning signs with Heidrick & Struggles International and understanding them should be part of your investment process.
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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