Stock Analysis

We Wouldn't Be Too Quick To Buy Hooker Furniture Corporation (NASDAQ:HOFT) Before It Goes Ex-Dividend

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NasdaqGS:HOFT
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Hooker Furniture Corporation (NASDAQ:HOFT) stock is about to trade ex-dividend in 4 days. Investors can purchase shares before the 15th of December in order to be eligible for this dividend, which will be paid on the 31st of December.

Hooker Furniture's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.64 per share. Looking at the last 12 months of distributions, Hooker Furniture has a trailing yield of approximately 2.2% on its current stock price of $33.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Hooker Furniture

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. Hooker Furniture paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 9.1% of its free cash flow last year.

Click here to see how much of its profit Hooker Furniture paid out over the last 12 months.

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NasdaqGS:HOFT Historic Dividend December 10th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hooker Furniture reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hooker Furniture has delivered an average of 6.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Hooker Furniture's balance sheet health here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Hooker Furniture? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Hooker Furniture has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Hooker Furniture don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with Hooker Furniture and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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