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Readers hoping to buy James Halstead plc (LON:JHD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 20th of August in order to receive the dividend, which the company will pay on the 10th of September.
James Halstead's upcoming dividend is UK£0.021 a share, following on from the last 12 months, when the company distributed a total of UK£0.14 per share to shareholders. Calculating the last year's worth of payments shows that James Halstead has a trailing yield of 2.8% on the current share price of £5.1. If you buy this business for its dividend, you should have an idea of whether James Halstead's dividend is reliable and sustainable. As a result, readers should always check whether James Halstead has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for James Halstead
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. James Halstead paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether James Halstead generated enough free cash flow to afford its dividend. It paid out 91% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
While James Halstead's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were James Halstead to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. This is why it's a relief to see James Halstead earnings per share are up 4.0% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.