DHT Holdings, Inc. (NYSE:DHT) Pays A US$1.22 Dividend In Just Three Days
DHT Holdings, Inc. (NYSE:DHT) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase DHT Holdings' shares before the 17th of August in order to be eligible for the dividend, which will be paid on the 24th of August.
The company's next dividend payment will be US$1.22 per share, and in the last 12 months, the company paid a total of US$1.86 per share. Based on the last year's worth of payments, DHT Holdings stock has a trailing yield of around 9.9% on the current share price of US$18.72. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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 dividends equivalent to 653% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how DHT Holdings intends to continue funding this dividend, or if it could be forced to cut the payment.
While DHT Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were DHT Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for DHT Holdings
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. For this reason, we're glad to see DHT Holdings's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, DHT Holdings has increased its dividend at approximately 10.0% 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 DHT Holdings? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note DHT Holdings paid out a much higher percentage of its free cash flow, which makes us uncomfortable. To summarise, DHT Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.
With that being said, if dividends aren't your biggest concern with DHT Holdings, you should know about the other risks facing this business. For example, we've found 4 warning signs for DHT Holdings (2 can't be ignored!) that deserve your attention before investing in the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.