Heritage Financial's (NASDAQ:HFWA) Dividend Will Be Increased To $0.22

The board of Heritage Financial Corporation (NASDAQ:HFWA) has announced that it will be paying its dividend of $0.22 on the 18th of May, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.8%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Heritage Financial's stock price has reduced by 35% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for Heritage Financial

Heritage Financial's Dividend Forecasted To Be Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Heritage Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Heritage Financial's payout ratio of 36% is a good sign as this means that earnings decently cover dividends.

EPS is set to fall by 0.4% over the next 12 months. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 40%, which we are pretty comfortable with and we think would be feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was $0.32, compared to the most recent full-year payment of $0.88. This means that it has been growing its distributions at 11% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Heritage Financial has seen EPS rising for the last five years, at 12% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Heritage Financial Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Heritage Financial is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Heritage Financial (of which 1 is concerning!) you should know about. 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.