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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Helmerich & Payne, Inc. (NYSE:HP) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Helmerich & Payne's shares before the 17th of November in order to receive the dividend, which the company will pay on the 4th of December.
The company's upcoming dividend is US$0.42 a share, following on from the last 12 months, when the company distributed a total of US$1.88 per share to shareholders. Based on the last year's worth of payments, Helmerich & Payne has a trailing yield of 4.9% on the current stock price of $37.88. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Helmerich & Payne can afford its dividend, and if the dividend could grow.
View our latest analysis for Helmerich & Payne
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. Helmerich & Payne paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Helmerich & Payne's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Helmerich & Payne's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.