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Readers hoping to buy Hercules Site Services Plc (LON:HERC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Hercules Site Services' shares on or after the 23rd of February, you won't be eligible to receive the dividend, when it is paid on the 24th of March.
The company's next dividend payment will be UK£0.011 per share, on the back of last year when the company paid a total of UK£0.017 to shareholders. Looking at the last 12 months of distributions, Hercules Site Services has a trailing yield of approximately 2.9% on its current stock price of £0.59. If you buy this business for its dividend, you should have an idea of whether Hercules Site Services's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Hercules Site Services
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. An unusually high payout ratio of 298% of its profit suggests something is happening other than the usual distribution of profits to shareholders. 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. Hercules Site Services paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
It's good to see that while Hercules Site Services's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Hercules Site Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Hercules Site Services's earnings per share have plummeted approximately 83% a year over the previous five years.