Home Bancorp (NASDAQ:HBCP) Is Paying Out A Larger Dividend Than Last Year

Home Bancorp, Inc. (NASDAQ:HBCP) has announced that it will be increasing its dividend on the 20th of August to US$0.23. Even though the dividend went up, the yield is still quite low at only 2.5%.

See our latest analysis for Home Bancorp

Home Bancorp's Earnings Easily Cover the Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Home Bancorp was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 16.8% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 26%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Home Bancorp Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The first annual payment during the last 7 years was US$0.28 in 2014, and the most recent fiscal year payment was US$0.92. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Home Bancorp has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Home Bancorp has been growing its earnings per share at 19% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Home Bancorp Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Home Bancorp (1 is significant!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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