How Does Hooker Furniture Corporation (NASDAQ:HOFT) Fare As A Dividend Stock?

Could Hooker Furniture Corporation (NASDAQ:HOFT) be an attractive dividend share to own for the long haul? Investors are often drawn to a company for its dividend. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.

A 2.0% yield is nothing to get excited about, but investors probably think the long payment history suggests Hooker Furniture has some staying power. There are a few simple ways to reduce the risks of buying Hooker Furniture for its dividend, and we’ll go through these below.

Explore this interactive chart for our latest analysis on Hooker Furniture!
NasdaqGS:HOFT Historical Dividend Yield, April 15th 2019
NasdaqGS:HOFT Historical Dividend Yield, April 15th 2019

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to be form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Hooker Furniture paid out 20% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Hooker Furniture’s cash payout ratio in the last year was 28%, which suggests dividends were well covered by cash generated by the business.

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. Hooker Furniture has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past ten-year period, the first annual payment was US$0.40 in 2009, compared to US$0.60 last year. Dividends per share have grown at approximately 4.1% per year over this time.

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. It’s good to see Hooker Furniture has been growing its earnings per share at 29% a year over the past 5 years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.

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. First, we like that the company’s dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. We like that it has been delivering solid earnings growth and relatively consistent dividend payments. All these things considered, we think this organisation has a lot going for it from a dividend perspective.

You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Hooker Furniture stock.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.