Why It Might Not Make Sense To Buy Haverty Furniture Companies, Inc. (NYSE:HVT) For Its Upcoming Dividend

Haverty Furniture Companies, Inc. (NYSE:HVT) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Haverty Furniture Companies' shares before the 2nd of June in order to be eligible for the dividend, which will be paid on the 17th of June.

The company's upcoming dividend is US$0.32 a share, following on from the last 12 months, when the company distributed a total of US$1.28 per share to shareholders. Calculating the last year's worth of payments shows that Haverty Furniture Companies has a trailing yield of 6.1% on the current share price of US$20.91. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Haverty Furniture Companies paid out 98% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Haverty Furniture Companies's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

View our latest analysis for Haverty Furniture Companies

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Haverty Furniture Companies, with earnings per share up 3.8% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Haverty Furniture Companies has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Haverty Furniture Companies an attractive dividend stock, or better left on the shelf? While earnings per share have been growing slowly, Haverty Furniture Companies is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. Bottom line: Haverty Furniture Companies has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Haverty Furniture Companies despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Haverty Furniture Companies has 3 warning signs we think you should be aware of.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.