Harvey Norman Holdings (ASX:HVN) Is Increasing Its Dividend To A$0.175

Harvey Norman Holdings Limited (ASX:HVN) will increase its dividend from last year's comparable payment on the 14th of November to A$0.175. This will take the annual payment to 9.1% of the stock price, which is above what most companies in the industry pay.

Our analysis indicates that HVN is potentially undervalued!

Harvey Norman Holdings Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Harvey Norman Holdings was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to fall by 39.0%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 99%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of A$0.10 in 2012 to the most recent total annual payment of A$0.375. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Harvey Norman Holdings has seen EPS rising for the last five years, at 10% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Harvey Norman Holdings' payments are rock solid. While Harvey Norman Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Harvey Norman Holdings you should be aware of, and 1 of them is concerning. Is Harvey Norman Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.