Heritage Financial's (NASDAQ:HFWA) Dividend Will Be $0.24

The board of Heritage Financial Corporation (NASDAQ:HFWA) has announced that it will pay a dividend on the 20th of August, with investors receiving $0.24 per share. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

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Heritage Financial's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Having distributed dividends for at least 10 years, Heritage Financial has a long history of paying out a part of its earnings to shareholders. Based on Heritage Financial's last earnings report, the payout ratio is at a decent 65%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next year, EPS is forecast to expand by 27.7%. If the dividend continues along recent trends, we estimate the future payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Heritage Financial

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.52 in 2015, and the most recent fiscal year payment was $0.96. This implies that the company grew its distributions at a yearly rate of about 6.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Heritage Financial's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Heritage Financial has been growing its earnings per share at 5.3% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

In Summary

Overall, we think Heritage Financial is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Heritage Financial that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.