Stock Analysis

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

  •  Updated
NasdaqGS:HOFT
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hooker Furniture Corporation (NASDAQ:HOFT) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 16th of March will not receive the dividend, which will be paid on the 31st of March.

Hooker Furniture's upcoming dividend is US$0.18 a share, following on from the last 12 months, when the company distributed a total of US$0.72 per share to shareholders. Looking at the last 12 months of distributions, Hooker Furniture has a trailing yield of approximately 1.9% on its current stock price of $38.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out 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 reported a loss last year, so it's not great to see that it has continued paying a dividend. 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 Hooker Furniture didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 9.3% of its free cash flow in the 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 March 11th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. 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. In the past 10 years, Hooker Furniture has increased its dividend at approximately 6.1% a year on average.

Remember, you can always get a snapshot of Hooker Furniture's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy Hooker Furniture for the upcoming dividend? 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. It's not that we think Hooker Furniture is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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. For example - Hooker Furniture has 2 warning signs we think you should be aware of.

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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