Heritage Commerce Corp (NASDAQ:HTBK) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 7th of August will not receive this dividend, which will be paid on the 22nd of August.
Heritage Commerce's upcoming dividend is US$0.12 a share, following on from the last 12 months, when the company distributed a total of US$0.48 per share to shareholders. Based on the last year's worth of payments, Heritage Commerce stock has a trailing yield of around 4.1% on the current share price of $11.82. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Heritage Commerce can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Heritage Commerce'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Heritage Commerce's earnings have been skyrocketing, up 26% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Heritage Commerce has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Heritage Commerce is keeping back more of its profits to grow the business.
The Bottom Line
Is Heritage Commerce worth buying for its dividend? Companies like Heritage Commerce that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, Heritage Commerce looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Ever wonder what the future holds for Heritage Commerce? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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 firstname.lastname@example.org. 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.