Heritage Commerce Corp (NASDAQ:HTBK) will pay a dividend of $0.13 on the 22nd of August. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.
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. Investors will be pleased to see that Heritage Commerce's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
View our latest analysis for Heritage Commerce
Heritage Commerce's Payment Expected To Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.
Heritage Commerce has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Heritage Commerce's last earnings report, the payout ratio is at a decent 66%, meaning that the company is able to pay out its dividend with a bit of room to spare.
EPS is set to fall by 1.4% over the next 12 months. But if the dividend continues along recent trends, we estimate the future payout ratio could be 73%, which we would consider to be quite comfortable looking forward, with most of the company's earnings left over to grow the business in the future.
Heritage Commerce Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from $0.12 total annually to $0.52. This means that it has been growing its distributions at 16% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Dividend Growth Is Doubtful
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Heritage Commerce's EPS has declined at around 7.1% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
Our Thoughts On Heritage Commerce's Dividend
Overall, we think Heritage Commerce is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. 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. For example, we've picked out 1 warning sign for Heritage Commerce that investors should know about before committing capital to this stock. Is Heritage Commerce not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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About NasdaqGS:HTBK
Heritage Commerce
Operates as the bank holding company for Heritage Bank of Commerce that provides various commercial and personal banking services to residents and the business/professional community in California.
Flawless balance sheet established dividend payer.