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It looks like Heritage Financial Corporation (NASDAQ:HFWA) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 3rd of November will not receive this dividend, which will be paid on the 18th of November.
Heritage Financial's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.90 to shareholders. Based on the last year's worth of payments, Heritage Financial has a trailing yield of 4.4% on the current stock price of $20.61. If you buy this business for its dividend, you should have an idea of whether Heritage Financial's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Heritage Financial paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Heritage Financial, with earnings per share up 6.0% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Heritage Financial has delivered an average of 25% per year annual increase in its dividend, based on the past nine years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Heritage Financial an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. We're unconvinced on the company's merits, and think there might be better opportunities out there.
However if you're still interested in Heritage Financial as a potential investment, you should definitely consider some of the risks involved with Heritage Financial. For example, we've found 1 warning sign for Heritage Financial that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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