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Dividend paying stocks like Hingham Institution for Savings (NASDAQ:HIFS) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
A slim 1.1% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Hingham Institution for Savings could have potential. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, 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. In the last year, Hingham Institution for Savings paid out 9.9% of its profit as dividends. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.
We update our data on Hingham Institution for Savings every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. 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 fallen by at least 20% one or more times over this time. During the past ten-year period, the first annual payment was US$1.06 in 2009, compared to US$2.02 last year. Dividends per share have grown at approximately 6.7% per year over this time. The dividends haven't grown at precisely 6.7% every year, but this is a useful way to average out the historical rate of growth.
Dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? It's good to see Hingham Institution for Savings has been growing its earnings per share at 18% a year over the past 5 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. Hingham Institution for Savings fits all of our criteria, and we think it's an attractive dividend idea that would warrant further investigation.
See if management have put their money where their mouth is, by checking insider shareholdings in Hingham Institution for Savings stock.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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 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. Thank you for reading.