A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 10 years, Hercules Capital Inc (NYSE:HTGC) has returned an average of 10.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether Hercules Capital should have a place in your portfolio. See our latest analysis for Hercules Capital

How I analyze a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it paying an annual yield above 75% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

How does Hercules Capital fare?

The company currently pays out 130.47% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a lower payout ratio of 92.55%, leading to a dividend yield of around 10.20%. However, EPS should increase to $1.26, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although HTGC’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again. Compared to its peers, Hercules Capital produces a yield of 10.16%, which is high for Capital Markets stocks.

Next Steps:

Whilst there are few things you may like about Hercules Capital from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three key aspects you should look at:

• Future Outlook: What are well-informed industry analysts predicting for HTGC’s future growth? Take a look at our free research report of analyst consensus for HTGC’s outlook.

• Valuation: What is HTGC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HTGC is currently mispriced by the market.

• Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.