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 Huntington Ingalls Industries, Inc. (NYSE:HII) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 28th of May will not receive the dividend, which will be paid on the 12th of June.
Huntington Ingalls Industries's next dividend payment will be US$1.03 per share, on the back of last year when the company paid a total of US$4.12 to shareholders. Based on the last year's worth of payments, Huntington Ingalls Industries stock has a trailing yield of around 2.3% on the current share price of $182.77. If you buy this business for its dividend, you should have an idea of whether Huntington Ingalls Industries's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Huntington Ingalls Industries's payout ratio is modest, at just 26% of profit. A useful secondary check can be to evaluate whether Huntington Ingalls Industries generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Huntington Ingalls Industries's earnings per share have risen 16% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, Huntington Ingalls Industries has increased its dividend at approximately 34% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Huntington Ingalls Industries got what it takes to maintain its dividend payments? Huntington Ingalls Industries has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Huntington Ingalls Industries, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Huntington Ingalls Industries is facing. To help with this, we've discovered 5 warning signs for Huntington Ingalls Industries (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. Thank you for reading.