Is Hingham Institution for Savings (NASDAQ:HIFS) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
A 1.1% yield is nothing to get excited about, but investors probably think the long payment history suggests Hingham Institution for Savings has some staying power. There are a few simple ways to reduce the risks of buying Hingham Institution for Savings for its dividend, and we'll go through these below.
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. Hingham Institution for Savings paid out 8.7% of its profit as dividends, over the trailing twelve month period. We'd say its dividends are thoroughly covered by earnings.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Hingham Institution for Savings's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past ten-year period, the first annual payment was US$1.06 in 2010, compared to US$2.24 last year. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.
It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Hingham Institution for Savings might have put its house in order since then, but we remain cautious.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's good to see Hingham Institution for Savings has been growing its earnings per share at 12% a year over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
To summarise, shareholders should always check that Hingham Institution for Savings's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're glad to see Hingham Institution for Savings has a low payout ratio, as this suggests earnings are being reinvested in the business. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Overall we think Hingham Institution for Savings is an interesting dividend stock, although it could be better.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Hingham Institution for Savings stock.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
If you spot an error that warrants correction, please contact the editor at email@example.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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