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Dividend Investors: Don't Be Too Quick To Buy Hanesbrands Inc. (NYSE:HBI) For Its Upcoming Dividend

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Simply Wall St
·3-min read
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It looks like Hanesbrands Inc. (NYSE:HBI) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 18th of February will not receive this dividend, which will be paid on the 9th of March.

Hanesbrands's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Last year's total dividend payments show that Hanesbrands has a trailing yield of 3.2% on the current share price of $18.51. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Hanesbrands has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Hanesbrands

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hanesbrands reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Hanesbrands reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hanesbrands has delivered 15% dividend growth per year on average over the past eight years.

Remember, you can always get a snapshot of Hanesbrands's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is Hanesbrands an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Hanesbrands don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 4 warning signs for Hanesbrands (1 is a bit unpleasant) you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

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