Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HMS Bergbau AG (ETR:HMU) is about to trade ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. In other words, investors can purchase HMS Bergbau's shares before the 15th of August in order to be eligible for the dividend, which will be paid on the 1st of October.
The company's next dividend payment will be €1.05 per share, on the back of last year when the company paid a total of €1.05 to shareholders. Last year's total dividend payments show that HMS Bergbau has a trailing yield of 2.7% on the current share price of €38.80. 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.
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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. HMS Bergbau paid out a comfortable 36% of its profit last year. 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. Over the last year it paid out 53% of its free cash flow as dividends, within the usual 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.
Check out our latest analysis for HMS Bergbau
Click here to see how much of its profit HMS Bergbau paid out over the last 12 months.
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see HMS Bergbau has grown its earnings rapidly, up 92% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. HMS Bergbau has delivered an average of 197% per year annual increase in its dividend, based on the past three years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.