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Here's What We Like About Hewlett Packard Enterprise's (NYSE:HPE) Upcoming Dividend

It looks like Hewlett Packard Enterprise Company (NYSE:HPE) is about to go ex-dividend in the next four 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. Therefore, if you purchase Hewlett Packard Enterprise's shares on or after the 18th of June, you won't be eligible to receive the dividend, when it is paid on the 18th of July.

The company's next dividend payment will be US$0.13 per share, and in the last 12 months, the company paid a total of US$0.52 per share. Based on the last year's worth of payments, Hewlett Packard Enterprise stock has a trailing yield of around 2.5% on the current share price of US$20.91. If you buy this business for its dividend, you should have an idea of whether Hewlett Packard Enterprise's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Hewlett Packard Enterprise

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. Hewlett Packard Enterprise paid out a comfortable 36% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

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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 the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Hewlett Packard Enterprise's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Hewlett Packard Enterprise has increased its dividend at approximately 10% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Hewlett Packard Enterprise? Earnings per share have been flat over this time, but we're intrigued to see that Hewlett Packard Enterprise 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. Generally we like to see both low payout ratios and strong earnings per share growth, but Hewlett Packard Enterprise is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Hewlett Packard Enterprise for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Hewlett Packard Enterprise and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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.