We Wouldn't Be Too Quick To Buy Hennessy Advisors, Inc. (NASDAQ:HNNA) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hennessy Advisors, Inc. (NASDAQ:HNNA) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 23rd of February to receive the dividend, which will be paid on the 9th of March.

Hennessy Advisors's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.55 to shareholders. Based on the last year's worth of payments, Hennessy Advisors has a trailing yield of 6.1% on the current stock price of $9.09. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hennessy Advisors

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hennessy Advisors paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Hennessy Advisors's 5.8% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hennessy Advisors has delivered an average of 25% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is Hennessy Advisors an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Hennessy Advisors's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Hennessy Advisors and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Hennessy Advisors is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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