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The board of HCI Group, Inc. (NYSE:HCI) has announced that it will pay a dividend of US$0.40 per share on the 17th of June. This payment means that the dividend yield will be 2.3%, which is around the industry average.
See our latest analysis for HCI Group
HCI Group Is Paying Out More Than It Is Earning
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 707% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 17%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
If the company can't turn things around, EPS could fall by 42.8% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 1,636%, which is definitely a bit high to be sustainable going forward.
HCI Group Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$0.40 in 2012 to the most recent annual payment of US$1.60. This means that it has been growing its distributions at 15% 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 could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 43% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
We'd also point out that HCI Group has issued stock equal to 19% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On HCI Group's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for HCI Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.