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Dividend Investors: Don't Be Too Quick To Buy Hunt Companies Finance Trust, Inc. (NYSE:HCFT) For Its Upcoming Dividend

Simply Wall St

Hunt Companies Finance Trust, Inc. (NYSE:HCFT) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 27th of September, you won't be eligible to receive this dividend, when it is paid on the 15th of October.

Hunt Companies Finance Trust's upcoming dividend is US$0.07 a share, following on from the last 12 months, when the company distributed a total of US$0.3 per share to shareholders. Based on the last year's worth of payments, Hunt Companies Finance Trust has a trailing yield of 9.0% on the current stock price of $3.35. If you buy this business for its dividend, you should have an idea of whether Hunt Companies Finance Trust's dividend is reliable and sustainable. As a result, readers should always check whether Hunt Companies Finance Trust has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Hunt Companies Finance Trust

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hunt Companies Finance Trust paid out a disturbingly high 284% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

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

NYSE:HCFT Historical Dividend Yield, September 22nd 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Hunt Companies Finance Trust's 29% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hunt Companies Finance Trust's dividend payments per share have declined at 27% per year on average over the past six years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is Hunt Companies Finance Trust worth buying for its dividend? Not only are earnings per share shrinking, but Hunt Companies Finance Trust is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Curious what other investors think of Hunt Companies Finance Trust? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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. Thank you for reading.