It looks like Hubbell Incorporated (NYSE:HUBB) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 27th of February to receive the dividend, which will be paid on the 16th of March.
Hubbell's upcoming dividend is US$0.91 a share, following on from the last 12 months, when the company distributed a total of US$3.64 per share to shareholders. Based on the last year's worth of payments, Hubbell has a trailing yield of 2.5% on the current stock price of $144.52. If you buy this business for its dividend, you should have an idea of whether Hubbell's dividend is reliable and sustainable. So we need to investigate whether Hubbell can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hubbell paid out a comfortable 47% of its profit last year. A useful secondary check can be to evaluate whether Hubbell generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 37% 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Hubbell earnings per share are up 5.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, Hubbell has lifted its dividend by approximately 10% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Hubbell an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Hubbell is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Hubbell is halfway there. Hubbell looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Hubbell? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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