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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that HELLA GmbH & Co. KGaA (ETR:HLE) is about to go ex-dividend in just 4 days. You can purchase shares before the 30th of September in order to receive the dividend, which the company will pay on the 2nd of October.
The upcoming dividend for HELLA GmbH KGaA will put a total of €3.4 per share in shareholders' pockets, up from last year's total dividends of €1.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for HELLA GmbH KGaA
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HELLA GmbH KGaA has a low and conservative payout ratio of just 19% of its income after tax. 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. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see HELLA GmbH KGaA has grown its earnings rapidly, up 21% a year for 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. In the past four years, HELLA GmbH KGaA has increased its dividend at approximately 8.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy HELLA GmbH KGaA for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, HELLA GmbH KGaA paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.