J.B. Hunt Transport Services, Inc. ( NASDAQ:JBHT ) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 1st of August will not receive this dividend, which will be paid on the 16th of August.
J.B. Hunt Transport Services's next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$1.04 to shareholders. Looking at the last 12 months of distributions, J.B. Hunt Transport Services has a trailing yield of approximately 1.0% on its current stock price of $102.94. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. J.B. Hunt Transport Services paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out an unsustainably high 353% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
While J.B. Hunt Transport Services'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 J.B. Hunt Transport Services to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see J.B. Hunt Transport Services earnings per share are up 8.4% per annum over the last five years. Earnings have been growing at a steady 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. J.B. Hunt Transport Services has delivered an average of 10% per year annual increase in its dividend, based on the past 10 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
Is J.B. Hunt Transport Services worth buying for its dividend? J.B. Hunt Transport Services delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 353% of its cash flow over the last year, which is a mediocre outcome. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Curious what other investors think of J.B. Hunt Transport Services? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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