It looks like Heritage Commerce Corp (NASDAQ:HTBK) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 12th of May, you won't be eligible to receive this dividend, when it is paid on the 27th of May.
Heritage Commerce's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.52 to shareholders. Looking at the last 12 months of distributions, Heritage Commerce has a trailing yield of approximately 4.2% on its current stock price of $12.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Heritage Commerce paid out 69% of its earnings to investors last year, a normal payout level for most businesses.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Heritage Commerce, with earnings per share up 9.2% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Heritage Commerce has lifted its dividend by approximately 20% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Heritage Commerce got what it takes to maintain its dividend payments? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
However if you're still interested in Heritage Commerce as a potential investment, you should definitely consider some of the risks involved with Heritage Commerce. In terms of investment risks, we've identified 3 warning signs with Heritage Commerce and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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