Houlihan Lokey's (NYSE:HLI) Upcoming Dividend Will Be Larger Than Last Year's

The board of Houlihan Lokey, Inc. (NYSE:HLI) has announced that it will be paying its dividend of $0.57 on the 15th of June, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.7%, which is below the industry average.

Check out our latest analysis for Houlihan Lokey

Houlihan Lokey's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Houlihan Lokey was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 49.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.

Houlihan Lokey Doesn't Have A Long Payment History

It is great to see that Houlihan Lokey has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 9 years was $0.60 in 2015, and the most recent fiscal year payment was $2.28. This means that it has been growing its distributions at 16% per annum over that time. Houlihan Lokey has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

We Could See Houlihan Lokey's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Houlihan Lokey has been growing its earnings per share at 9.7% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Houlihan Lokey Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Houlihan Lokey is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Houlihan Lokey that investors need to be conscious of moving forward. 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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