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Is It Smart To Buy Heritage Financial Corporation (NASDAQ:HFWA) Before It Goes Ex-Dividend?

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Simply Wall St
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Heritage Financial Corporation (NASDAQ:HFWA) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 7th of August will not receive the dividend, which will be paid on the 22nd of August.

Heritage Financial's next dividend payment will be US$0.19 per share. Last year, in total, the company distributed US$0.86 to shareholders. Calculating the last year's worth of payments shows that Heritage Financial has a trailing yield of 3.0% on the current share price of $27.48. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Heritage Financial

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Heritage Financial's payout ratio is modest, at just 39% of profit.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:HFWA Historical Dividend Yield, August 2nd 2019
NasdaqGS:HFWA Historical Dividend Yield, August 2nd 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Heritage Financial has grown its earnings rapidly, up 23% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Heritage Financial has lifted its dividend by approximately 3.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Heritage Financial is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid Heritage Financial? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Heritage Financial more closely.

Ever wonder what the future holds for Heritage Financial? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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 editorial-team@simplywallst.com. 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.