Hamilton Beach Brands Holding Company (NYSE:HBB) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible 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. This means that investors who purchase Hamilton Beach Brands Holding's shares on or after the 3rd of March will not receive the dividend, which will be paid on the 14th of March.

The company's next dividend payment will be US$0.115 per share, on the back of last year when the company paid a total of US$0.46 to shareholders. Calculating the last year's worth of payments shows that Hamilton Beach Brands Holding has a trailing yield of 2.5% on the current share price of US$18.06. If you buy this business for its dividend, you should have an idea of whether Hamilton Beach Brands Holding's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hamilton Beach Brands Holding

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hamilton Beach Brands Holding has a low and conservative payout ratio of just 24% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 12% of its free cash flow in the 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 how much of its profit Hamilton Beach Brands Holding paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Hamilton Beach Brands Holding, with earnings per share up 2.7% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hamilton Beach Brands Holding has delivered an average of 4.4% per year annual increase in its dividend, based on the past seven years of dividend payments. 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.

The Bottom Line

Should investors buy Hamilton Beach Brands Holding for the upcoming dividend? Earnings per share growth has been growing somewhat, and Hamilton Beach Brands Holding is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Hamilton Beach Brands Holding is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Hamilton Beach Brands Holding, and we would prioritise taking a closer look at it.

Curious about whether Hamilton Beach Brands Holding has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.