Hennessy Advisors (NASDAQ:HNNA) Has Announced A Dividend Of $0.1375

Hennessy Advisors, Inc. (NASDAQ:HNNA) has announced that it will pay a dividend of $0.1375 per share on the 6th of March. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Hennessy Advisors

Hennessy Advisors Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Hennessy Advisors' dividend made up quite a large proportion of earnings but only 60% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, EPS could fall by 22.1% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 114%, which could put the dividend under pressure if earnings don't start to improve.

Hennessy Advisors Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.0832 in 2013 to the most recent total annual payment of $0.55. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Earnings per share has been sinking by 22% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On Hennessy Advisors' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Hennessy Advisors (of which 1 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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