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Dividend Investors: Don't Be Too Quick To Buy Hooker Furniture Corporation (NASDAQ:HOFT) For Its Upcoming Dividend

Simply Wall St

It looks like Hooker Furniture Corporation (NASDAQ:HOFT) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 17th of September will not receive the dividend, which will be paid on the 30th of September.

Hooker Furniture's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Based on the last year's worth of payments, Hooker Furniture stock has a trailing yield of around 2.3% on the current share price of $27.54. If you buy this business for its dividend, you should have an idea of whether Hooker Furniture's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Hooker Furniture

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hooker Furniture's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Hooker Furniture didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 9.1% of its cash flow last year.

Click here to see how much of its profit Hooker Furniture paid out over the last 12 months.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hooker Furniture was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hooker Furniture has delivered 4.8% dividend growth per year on average over the past 10 years.

Get our latest analysis on Hooker Furniture's balance sheet health here.

The Bottom Line

Should investors buy Hooker Furniture for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Hooker Furniture despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 2 warning signs with Hooker Furniture and understanding them should be part of your investment process.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.