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The board of Heidrick & Struggles International, Inc. (NASDAQ:HSII) has announced that it will pay a dividend of $0.15 per share on the 27th of March. This means the annual payment will be 1.3% of the current stock price, which is lower than the industry average.
Check out our latest analysis for Heidrick & Struggles International
Heidrick & Struggles International's Projected Earnings Seem Likely To Cover Future Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the company was paying out 140% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 9.9%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Earnings per share is forecast to rise by 65.7% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 86% which is a bit high but can definitely be sustainable.
Heidrick & Struggles International Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $0.52 total annually to $0.60. This means that it has been growing its distributions at 1.4% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Earnings per share has been sinking by 29% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Heidrick & Struggles International's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.