It Might Be Better To Avoid Hasbro, Inc.'s (NASDAQ:HAS) Upcoming Dividend

Hasbro, Inc. (NASDAQ:HAS) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 30th of January in order to be eligible for this dividend, which will be paid on the 18th of February.

Hasbro's next dividend payment will be US$0.68 per share, and in the last 12 months, the company paid a total of US$2.72 per share. Based on the last year's worth of payments, Hasbro stock has a trailing yield of around 2.6% on the current share price of $104.68. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hasbro has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Hasbro

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. Hasbro paid out 129% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Hasbro's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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 fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Hasbro'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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Hasbro has lifted its dividend by approximately 13% a year on average.

To Sum It Up

Is Hasbro worth buying for its dividend? The company has not generated any growth in earnings per share over the ten-year timeframe we measured. Additionally, Hasbro is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Ever wonder what the future holds for Hasbro? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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