Readers hoping to buy Home Point Capital Inc. (NASDAQ:HMPT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Home Point Capital's shares before the 9th of March to receive the dividend, which will be paid on the 24th of March.
The company's upcoming dividend is US$0.04 a share, following on from the last 12 months, when the company distributed a total of US$0.16 per share to shareholders. Based on the last year's worth of payments, Home Point Capital has a trailing yield of 5.0% on the current stock price of $3.23. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Home Point Capital has been able to grow its dividends, or if the dividend might be cut.
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. Home Point Capital is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Home Point Capital paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. From this perspective, we're disturbed to see earnings per share plunged 73% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.
Unfortunately Home Point Capital has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Is Home Point Capital an attractive dividend stock, or better left on the shelf? Home Point Capital's earnings per share have declined over the past 12 months, although we note that it is paying out a low fraction of its earnings. Ordinarily we wouldn't be too concerned about a one-year decline, especially given the payout ratio is low. This makes us wonder if the company is incurring costs by reinvesting in its business. Ordinarily we wouldn't be too concerned about a one-year decline, but the -73% drop in earnings per share is enough to make us think twice. We're unconvinced on the company's merits, and think there might be better opportunities out there.
However if you're still interested in Home Point Capital as a potential investment, you should definitely consider some of the risks involved with Home Point Capital. Be aware that Home Point Capital is showing 4 warning signs in our investment analysis, and 1 of those is significant...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.