Dividend paying stocks like Heartland Group Holdings Limited (NZSE:HGH) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
So you might want to consider getting our latest analysis on Heartland Group Holdings’s financial health here.
In this case, Heartland Group Holdings likely looks attractive to dividend investors, given its 7.6% dividend yield and seven-year payment history. It sure looks interesting on these metrics – but there’s always more to the story . When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. In the last year, Heartland Group Holdings paid out 91% of its profit as dividends. With a payout ratio this high, we’d say its dividend is not well covered by earnings. This may be fine if earnings are growing, but it might not take much of a downturn for the dividend to come under pressure.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Heartland Group Holdings has been paying a dividend for the past seven years. It’s good to see that Heartland Group Holdings has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we’re concerned that what has been cut once, could be cut again. During the past seven-year period, the first annual payment was NZ$0.04 in 2012, compared to NZ$0.13 last year. Dividends per share have grown at approximately 18% per year over this time. The dividends haven’t grown at precisely 18% every year, but this is a useful way to average out the historical rate of growth.
So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.
Dividend Growth Potential
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. Heartland Group Holdings has grown its earnings per share at 4.7% per annum over the past five years. Still, the company has struggled to grow its EPS, and currently pays out 91% of its earnings. As they say in finance, ‘past performance is not indicative of future performance’, but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.
To summarise, shareholders should always check that Heartland Group Holdings’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, it’s not great to see how much of its earnings are being paid as dividends. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. With this information in mind, we think Heartland Group Holdings may not be an ideal dividend stock.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 4 analysts we track are forecasting for Heartland Group Holdings for free with public analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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.
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