Over the past 10 years HNI Corporation (NYSE:HNI) has grown its dividend payouts from $0.86 to $1.22. With a market cap of US$1.4b, HNI pays out 58% of its earnings, leading to a 3.9% yield. Let me elaborate on you why the stock stands out for income investors like myself.
What Is A Dividend Rock Star?
It is a stock that pays a consistent, reliable and competitive dividend over a long period of time, and is expected to continue to pay in the same manner many years to come. More specifically:
- It is paying an annual yield above 75% of dividend payers
- It has paid dividend every year without dramatically reducing payout in the past
- Its dividend per share amount has increased over the past
- It can afford to pay the current rate of dividends from its earnings
- It has the ability to keep paying its dividends going forward
High Yield And Dependable
HNI currently yields 3.9%, which is high for Commercial Services stocks. But the real reason HNI stands out is because it has a high chance of being able to continue to pay dividend at this level for years to come, something that is quite desirable if you are looking to create a portfolio that generates a steady stream of income.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. In the case of HNI it has increased its DPS from $0.86 to $1.22 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes HNI a true dividend rockstar.
The current trailing twelve-month payout ratio for the stock is 58%, which means that the dividend is covered by earnings. However, going forward, analysts expect HNI's payout to fall to 42% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.2%. However, EPS should increase to $2.72, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
HNI's strong dividend attributes make it, without a doubt, a stock dividend investors should be considering for their portfolios. However, given 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. I've put together three essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for HNI’s future growth? Take a look at our free research report of analyst consensus for HNI’s outlook.
- Valuation: What is HNI 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 HNI is currently mispriced by the market.
- Other Dividend Rockstars: Are there strong dividend payers with better 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.