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The board of Heritage Insurance Holdings, Inc. (NYSE:HRTG) has announced that it will pay a dividend on the 6th of January, with investors receiving US$0.06 per share. This makes the dividend yield 3.4%, which will augment investor returns quite nicely.
View our latest analysis for Heritage Insurance Holdings
Heritage Insurance Holdings' Distributions May Be Difficult To Sustain
A big dividend yield for a few years doesn't mean much if it can't be sustained. While Heritage Insurance Holdings is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
Recent, EPS has fallen by 29.0%, so this could continue over the next year. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
Heritage Insurance Holdings Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2015, the first annual payment was US$0.20, compared to the most recent full-year payment of US$0.24. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Heritage Insurance Holdings' earnings per share has shrunk at 29% 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.
Heritage Insurance Holdings' Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Heritage Insurance Holdings' payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.