HMN Financial (NASDAQ:HMNF) Is Increasing Its Dividend To $0.10

The board of HMN Financial, Inc. (NASDAQ:HMNF) has announced that it will be increasing its dividend by 25% on the 7th of June to $0.10, up from last year's comparable payment of $0.08. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

See our latest analysis for HMN Financial

HMN Financial's Payment Expected To Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

HMN Financial is just starting to establish itself as being able to pay dividends to shareholders, given its short 2-year history of distributing earnings. Despite the company's shorter dividend history however, calculating for its payout ratio of 25% shows that HMN Financial is able to comfortably pay dividends.

EPS is set to fall by 7.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the future payout ratio could be 35%, which we are pretty comfortable with and we think is feasible on an earnings basis.

HMN Financial Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2022, the dividend has gone from $0.24 total annually to $0.32. This means that it has been growing its distributions at 15% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, HMN Financial's earnings per share has shrunk at approximately 7.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think HMN Financial's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments HMN Financial has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for HMN Financial (1 is potentially serious!) 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.