Readers hoping to buy Helmerich & Payne, Inc. (NYSE:HP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Helmerich & Payne's shares before the 18th of November in order to receive the dividend, which the company will pay on the 2nd of December.

The company's next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$1.68 to shareholders. Calculating the last year's worth of payments shows that Helmerich & Payne has a trailing yield of 4.9% on the current share price of US$33.94. If you buy this business for its dividend, you should have an idea of whether Helmerich & Payne's dividend is reliable and sustainable. As a result, readers should always check whether Helmerich & Payne has been able to grow its dividends, or if the dividend might be cut.

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. That's why it's good to see Helmerich & Payne paying out a modest 29% of its earnings. A useful secondary check can be to evaluate whether Helmerich & Payne generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (89%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Helmerich & Payne's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Helmerich & Payne has grown its earnings rapidly, up 60% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Helmerich & Payne has seen its dividend decline 3.9% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

From a dividend perspective, should investors buy or avoid Helmerich & Payne? Earnings per share have grown at a nice rate in recent times and over the last year, Helmerich & Payne paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while Helmerich & Payne looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Helmerich & Payne (1 is potentially serious!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.