HNI Corporation (NYSE:HNI) Is About To Go Ex-Dividend, And It Pays A 4.8% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HNI Corporation (NYSE:HNI) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, HNI investors that purchase the stock on or after the 8th of June will not receive the dividend, which will be paid on the 23rd of June.

The company's upcoming dividend is US$0.32 a share, following on from the last 12 months, when the company distributed a total of US$1.28 per share to shareholders. Looking at the last 12 months of distributions, HNI has a trailing yield of approximately 4.8% on its current stock price of $26.67. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether HNI can afford its dividend, and if the dividend could grow.

View our latest analysis for HNI

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. That's why it's good to see HNI paying out a modest 48% of its earnings. A useful secondary check can be to evaluate whether HNI generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that HNI'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?

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. This is why it's a relief to see HNI earnings per share are up 5.4% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, HNI has lifted its dividend by approximately 2.9% 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid HNI? Earnings per share have been growing at a steady rate, and HNI paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, HNI looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in HNI for the dividends alone, you should always be mindful of the risks involved. Be aware that HNI is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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