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

The board of Hennessy Advisors, Inc. (NASDAQ:HNNA) has announced that it will pay a dividend on the 6th of September, with investors receiving $0.1375 per share. This makes the dividend yield 7.7%, which will augment investor returns quite nicely.

View our latest analysis for Hennessy Advisors

Hennessy Advisors Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Hennessy Advisors' dividend made up quite a large proportion of earnings but only 66% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, EPS could fall by 24.7% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 136%, which is definitely a bit high to be sustainable going forward.

Hennessy Advisors Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.0832 in 2013, and the most recent fiscal year payment was $0.55. This means that it has been growing its distributions at 21% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Hennessy Advisors' earnings per share has shrunk at 25% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Hennessy Advisors' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hennessy Advisors' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Hennessy Advisors has 2 warning signs (and 1 which is a bit concerning) we think 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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