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It looks like Hansen Technologies Limited (ASX:HSN) is about to go ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 2nd of September will not receive this dividend, which will be paid on the 25th of September.
The upcoming dividend for Hansen Technologies is AU$0.07 per share, increased from last year's total dividends per share of AU$0.06. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hansen Technologies has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Hansen Technologies
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hansen Technologies paid out 74% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 43% 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.
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. So we're not too excited that Hansen Technologies's earnings are down 2.5% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hansen Technologies has delivered 1.8% dividend growth per year on average over the past 10 years.
Final Takeaway
Should investors buy Hansen Technologies for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Hansen Technologies looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into Hansen Technologies, it's worth knowing the risks this business faces. Our analysis shows 3 warning signs for Hansen Technologies and you should be aware of them before buying any shares.