A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the last few years Home Bancorp, Inc. (NASDAQ:HBCP) has paid a dividend to shareholders. Today it yields 2.3%. Does Home Bancorp tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on 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?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has dividend per share amount increased over the past?
Is is able to pay the current rate of dividends from its earnings?
Will it have the ability to keep paying its dividends going forward?
How does Home Bancorp fare?
Home Bancorp has a trailing twelve-month payout ratio of 20%, which means that the dividend is covered by earnings. Going forward, analysts expect HBCP’s payout to increase to 29% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.4%. However, EPS is forecasted to fall to $3.1 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Home Bancorp as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Home Bancorp produces a yield of 2.3%, which is on the low-side for Mortgage stocks.
If you are building an income portfolio, then Home Bancorp is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three fundamental aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for HBCP’s future growth? Take a look at our free research report of analyst consensus for HBCP’s outlook.
Valuation: What is HBCP 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 HBCP is currently mispriced by the market.
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.