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It looks like Helical plc (LON:HLCL) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 28th of November in order to be eligible for this dividend, which will be paid on the 31st of December.
Helical's next dividend payment will be UK£0.027 per share. Last year, in total, the company distributed UK£0.10 to shareholders. Based on the last year's worth of payments, Helical has a trailing yield of 2.5% on the current stock price of £4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Helical
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Helical paid out a comfortable 40% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Helical'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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Helical's earnings per share have fallen at approximately 19% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Helical has lifted its dividend by approximately 8.4% a year on average.
Final Takeaway
Has Helical got what it takes to maintain its dividend payments? Helical has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about Helical from a dividend perspective.