Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that HF Sinclair Corporation (NYSE:DINO) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, HF Sinclair investors that purchase the stock on or after the 17th of August will not receive the dividend, which will be paid on the 1st of September.

The company's next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$1.60 to shareholders. Looking at the last 12 months of distributions, HF Sinclair has a trailing yield of approximately 3.2% on its current stock price of $50.64. If you buy this business for its dividend, you should have an idea of whether HF Sinclair's dividend is reliable and sustainable. So we need to investigate whether HF Sinclair can afford its dividend, and if the dividend could grow.

See our latest analysis for HF Sinclair

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. HF Sinclair has a low and conservative payout ratio of just 4.5% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 8.1% of its free cash flow last year.

It's positive to see that HF Sinclair'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?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. HF Sinclair's earnings per share have fallen at approximately 14% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, HF Sinclair has lifted its dividend by approximately 15% a year on average.

The Bottom Line

Should investors buy HF Sinclair for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about HF Sinclair from a dividend perspective.

So while HF Sinclair looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 4 warning signs with HF Sinclair (at least 1 which makes us a bit uncomfortable), 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.

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