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Hennessy Advisors, Inc. (NASDAQ:HNNA) has announced that it will pay a dividend of $0.1375 per share on the 5th of September. This means the annual payment is 5.8% of the current stock price, which is above the average for the industry.
View our latest analysis for Hennessy Advisors
Hennessy Advisors' Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Hennessy Advisors' earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, could fall by 12.7% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 91%, which is definitely on the higher side.
Hennessy Advisors Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from $0.0833 total annually to $0.55. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Hennessy Advisors' earnings per share has shrunk at 13% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
In Summary
Overall, a consistent dividend is a good thing, and we think that Hennessy Advisors has the ability to continue this into the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Hennessy Advisors has 2 warning signs (and 1 which is significant) we think you should know about. Is Hennessy Advisors not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.