Only Three Days Left To Cash In On JB Hi-Fi’s (ASX:JBH) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see JB Hi-Fi Limited (ASX:JBH) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Therefore, if you purchase JB Hi-Fi’s shares on or after the 27th of August, you won’t be eligible to receive the dividend, when it is paid on the 11th of September.

The company’s upcoming dividend is AU$1.27 a share, following on from the last 12 months, when the company distributed a total of AU$3.37 per share to shareholders. Based on the last year’s worth of payments, JB Hi-Fi stock has a trailing yield of around 4.9% on the current share price of AU$69.20. 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 JB Hi-Fi has been able to grow its dividends, or if the dividend might be cut.

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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. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We’d be concerned if earnings began to decline. 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. Over the last year it paid out 74% of its free cash flow as dividends, within the usual range for most companies.

It’s positive to see that JB Hi-Fi’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.

Check out our latest analysis for JB Hi-Fi

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

Have Earnings And Dividends Been Growing?

Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 not encouraging to see that JB Hi-Fi’s earnings are effectively flat 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. A payout ratio of 75% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. JB Hi-Fi has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Has JB Hi-Fi got what it takes to maintain its dividend payments? JB Hi-Fi has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don’t appear unsustainable. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of JB Hi-Fi’s dividend merits.

With that being said, if dividends aren’t your biggest concern with JB Hi-Fi, you should know about the other risks facing this business. Case in point: We’ve spotted 1 warning sign for JB Hi-Fi you should be aware of.

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