Stock Analysis

Could Hooker Furniture Corporation (NASDAQ:HOFT) Have The Makings Of Another Dividend Aristocrat?

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NasdaqGS:HOFT
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Could Hooker Furniture Corporation (NASDAQ:HOFT) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A slim 2.0% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Hooker Furniture could have potential. Some simple research can reduce the risk of buying Hooker Furniture for its dividend - read on to learn more.

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historic-dividend
NasdaqGS:HOFT Historic Dividend March 30th 2021

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although it reported a loss over the past 12 months, Hooker Furniture currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Hooker Furniture's cash payout ratio last year was 9.3%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.

While the above analysis focuses on dividends relative to a company's earnings, we do note Hooker Furniture's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Hooker Furniture every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Hooker Furniture's dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was US$0.4 in 2011, compared to US$0.7 last year. Dividends per share have grown at approximately 6.1% per year over this time.

Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Hooker Furniture's earnings per share have shrunk at 16% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that Hooker Furniture's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. In sum, we find it hard to get excited about Hooker Furniture from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Hooker Furniture that investors need to be conscious of moving forward.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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