Over the past 10 years HNI Corporation (NYSE:HNI) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 2.8%, and has a market cap of US$1.8b. Let’s dig deeper into whether HNI should have a place in your portfolio.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does HNI fare?
HNI has a trailing twelve-month payout ratio of 54%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 38%, leading to a dividend yield of around 3.0%. However, EPS should increase to $2.71, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. In the case of HNI it has increased its DPS from $0.86 to $1.18 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, HNI generates a yield of 2.8%, which is high for Commercial Services stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank HNI 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. There are three fundamental factors you should further research:
- 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 better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.