- Oops!Something went wrong.Please try again later.
Harvey Norman Holdings Limited (ASX:HVN) is reducing its dividend to AU$0.15 on the 15th of November. However, the dividend yield of 7.0% is still a decent boost to shareholder returns.
Harvey Norman Holdings' Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Harvey Norman Holdings was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
EPS is set to fall by 37.9% over the next 12 months. If recent patterns in the dividend continue, we could see the payout ratio reaching 87% in the next 12 months, which is on the higher end of the range we would say is sustainable.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was AU$0.13 in 2011, and the most recent fiscal year payment was AU$0.30. This means that it has been growing its distributions at 8.7% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Harvey Norman Holdings might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
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 encouraging to see Harvey Norman Holdings has been growing its earnings per share at 17% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Harvey Norman Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Harvey Norman Holdings is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Harvey Norman Holdings has 2 warning signs (and 1 which is potentially serious) we think you should know about. We have also put together a list of global stocks with a solid dividend.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.