Readers hoping to buy H & M Hennes & Mauritz AB (publisher) (STO: HM B) for its dividend will have to come shortly, as the stock is set to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So you can buy H&M Hennes & Mauritz shares before May 5 in order to collect the dividend, which the company will pay on May 11.
The company’s next dividend is 3.25 kr per share, following the last 12 months, when the company distributed a total of 6.50 kr per share to shareholders. Based on last year’s payouts, H&M Hennes & Mauritz has a yield of 5.2% on the current share price of SEK 125.18. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. We therefore need to consider whether H&M Hennes & Mauritz can afford its dividend, and whether the dividend could increase.
Check out our latest analysis for H&M Hennes & Mauritz
Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Its dividend payout ratio is 87% of earnings, which means the company pays out the majority of its earnings. The relatively limited reinvestment of earnings could slow the rate of future earnings growth. We would be concerned about the risk of a drop in income. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Fortunately, its dividend payouts only accounted for 28% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see H&M Hennes & Mauritz’s dividend being covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend is cut. .
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
When earnings decline, dividend companies become much more difficult to analyze and to own safely. If earnings fall enough, the company could be forced to cut its dividend. Readers will then understand why we are concerned that H&M Hennes & Mauritz’s earnings per share have fallen 8.0% annually over the past five years. Such a sharp drop casts doubt on the future sustainability of the dividend.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. H&M Hennes & Mauritz has seen its dividend fall by 3.7% per year on average over the past 10 years, which is not encouraging. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged that management has cut the dividend rather than risk overcommitting the company in a risky attempt to maintain shareholder returns.
Has H&M Hennes & Mauritz got what it takes to maintain its dividend payouts? We’re not excited about the drop in earnings per share, even though at least the company’s payout ratio is in a reasonable range, meaning it may not be at imminent risk of dividend reduction. To sum up, H&M Hennes & Mauritz seems correct on this analysis, even if it doesn’t seem like a remarkable opportunity.
So, if you want to dig deeper into H&M Hennes & Mauritz, you will find it useful to know the risks this stock faces. For example, we found 2 warning signs for H & M Hennes & Mauritz which we recommend you consider before investing in the company.
A common investment mistake is to buy the first good stock you see. Here you can find a complete list of high yielding dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.