We Wouldn't Be Too Quick To Buy Hennessy Advisors, Inc. (NASDAQ:HNNA) Before It Goes Ex-Dividend
It looks like Hennessy Advisors, Inc. (NASDAQ:HNNA) is about to go ex-dividend in the next two days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Hennessy Advisors' shares on or after the 16th of February, you won't be eligible to receive the dividend, when it is paid on the 4th of March.
The company's upcoming dividend is US$0.1375 a share, following on from the last 12 months, when the company distributed a total of US$0.55 per share to shareholders. Calculating the last year's worth of payments shows that Hennessy Advisors has a trailing yield of 8.4% on the current share price of US$6.56. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Hennessy Advisors
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see how much of its profit Hennessy Advisors paid out over the last 12 months.
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. Hennessy Advisors's earnings per share have fallen at approximately 25% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Hennessy Advisors has increased its dividend at approximately 21% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Hennessy Advisors is already paying out 86% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Hennessy Advisors worth buying for its dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
So if you're still interested in Hennessy Advisors despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Hennessy Advisors is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
