Heritage Financial's (NASDAQ:HFWA) Dividend Will Be Increased To $0.23

Heritage Financial Corporation (NASDAQ:HFWA) will increase its dividend from last year's comparable payment on the 22nd of February to $0.23. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Heritage Financial

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Having distributed dividends for at least 10 years, Heritage Financial has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 50%, which means that Heritage Financial would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to expand by 14.9%. Analysts forecast the future payout ratio could be 48% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $0.82 in 2014 to the most recent total annual payment of $0.92. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

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. Earnings has been rising at 3.4% per annum over the last five years, which admittedly is a bit slow. Heritage Financial is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Heritage Financial's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Heritage Financial that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.