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Heartland Group Holdings Limited (NZSE:HGH) is reducing its dividend from last year's comparable payment to NZ$0.0353 on the 20th of September. The yield is still above the industry average at 6.3%.
View our latest analysis for Heartland Group Holdings
Heartland Group Holdings' Payment Expected To Have Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained.
Having distributed dividends for at least 10 years, Heartland Group Holdings has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Heartland Group Holdings' payout ratio of 71% is a good sign as this means that earnings decently cover dividends.
Looking forward, EPS is forecast to rise by 74.9% over the next 3 years. Analysts estimate the future payout ratio will be 53% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was NZ$0.05 in 2014, and the most recent fiscal year payment was NZ$0.07. This means that it has been growing its distributions at 3.4% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth Is Doubtful
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that Heartland Group Holdings' earnings per share has fallen at approximately 9.3% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
An additional note is that the company has been raising capital by issuing stock equal to 31% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On Heartland Group Holdings' Dividend
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Heartland Group Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.