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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 Hub Group, Inc. (NASDAQ:HUBG) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Hub Group investors that purchase the stock on or after the 6th of December will not receive the dividend, which will be paid on the 20th of December.
The company's upcoming dividend is US$0.125 a share, following on from the last 12 months, when the company distributed a total of US$0.50 per share to shareholders. Based on the last year's worth of payments, Hub Group stock has a trailing yield of around 1.0% on the current share price of US$51.64. If you buy this business for its dividend, you should have an idea of whether Hub Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Hub Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hub Group has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Hub Group generated enough free cash flow to afford its dividend. Luckily it paid out just 11% of its free cash flow last year.
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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Hub Group earnings per share are up 6.1% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.