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How Does Heartland Financial USA, Inc. (NASDAQ:HTLF) Stand Up To These Simple Dividend Safety Checks?

Today we'll take a closer look at Heartland Financial USA, Inc. (NASDAQ:HTLF) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A 1.6% yield is nothing to get excited about, but investors probably think the long payment history suggests Heartland Financial USA has some staying power. Some simple research can reduce the risk of buying Heartland Financial USA for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Heartland Financial USA!

NasdaqGS:HTLF Historical Dividend Yield, November 4th 2019
NasdaqGS:HTLF Historical Dividend Yield, November 4th 2019

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Heartland Financial USA paid out 16% of its profit as dividends, over the trailing twelve month period. We'd say its dividends are thoroughly covered by earnings.

Remember, you can always get a snapshot of Heartland Financial USA's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Heartland Financial USA has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having fallen by at least 20% one or more times over this time. During the past ten-year period, the first annual payment was US$0.40 in 2009, compared to US$0.77 last year. Dividends per share have grown at approximately 6.8% per year over this time. The dividends haven't grown at precisely 6.8% every year, but this is a useful way to average out the historical rate of growth.

It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Heartland Financial USA might have put its house in order since then, but we remain cautious.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? It's good to see Heartland Financial USA has been growing its earnings per share at 14% a year over the past five years. Earnings per share are growing at a solid clip, and the payout ratio is low. We think this is an ideal combination in a dividend stock.

Conclusion

To summarise, shareholders should always check that Heartland Financial USA's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Heartland Financial USA has a low and conservative payout ratio. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Heartland Financial USA has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Heartland Financial USA analysts we track are forecasting continued growth with our free report on analyst estimates for the company.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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.

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