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HCI Group, Inc. (NYSE:HCI) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 19th of November, you won't be eligible to receive this dividend, when it is paid on the 18th of December.
HCI Group's next dividend payment will be US$0.40 per share. Last year, in total, the company distributed US$1.60 to shareholders. Based on the last year's worth of payments, HCI Group stock has a trailing yield of around 3.1% on the current share price of $51.78. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether HCI Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately HCI Group's payout ratio is modest, at just 40% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the 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. With that in mind, we're discomforted by HCI Group's 7.3% 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. In the past 10 years, HCI Group has increased its dividend at approximately 15% a year on average.
The Bottom Line
From a dividend perspective, should investors buy or avoid HCI Group? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It doesn't appear an outstanding opportunity, but could be worth a closer look.
However if you're still interested in HCI Group as a potential investment, you should definitely consider some of the risks involved with HCI Group. For example, HCI Group has 3 warning signs (and 2 which are concerning) we think you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top 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.
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