Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, HollyFrontier Corporation (NYSE:HFC) has been paying a dividend to shareholders. Today it yields 2.7%. Let’s dig deeper into whether HollyFrontier should have a place in your portfolio.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does HollyFrontier fare?
HollyFrontier has a trailing twelve-month payout ratio of 21%, which means that the dividend is covered by earnings. Going forward, analysts expect HFC’s payout to remain around the same level at 23% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.8%. Furthermore, EPS is forecasted to fall to $5.67 in the upcoming year.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although HFC’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, HollyFrontier has a yield of 2.7%, which is on the low-side for Oil and Gas stocks.
With this in mind, I definitely rank HollyFrontier as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three pertinent aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for HFC’s future growth? Take a look at our free research report of analyst consensus for HFC’s outlook.
- Valuation: What is HFC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HFC is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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.