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The board of Hilltop Holdings Inc. (NYSE:HTH) has announced that it will pay a dividend on the 22nd of May, with investors receiving $0.18 per share. The dividend yield is 2.5% based on this payment, which is a little bit low compared to the other companies in the industry.
Hilltop Holdings' Payment Expected To Have Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.
Hilltop Holdings has established itself as a dividend paying company, given its 9-year history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Hilltop Holdings' payout ratio of 35% is a good sign for current shareholders as this means that earnings decently cover dividends.
Over the next year, EPS is forecast to fall by 4.0%. But if the dividend continues along recent trends, we estimate the future payout ratio could be 43%, which we would consider to be quite comfortable looking forward, with most of the company's earnings left over to grow the business in the future.
Check out our latest analysis for Hilltop Holdings
Hilltop Holdings Is Still Building Its Track Record
It is great to see that Hilltop Holdings has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the dividend has gone from $0.24 total annually to $0.72. This means that it has been growing its distributions at 13% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Hilltop Holdings May Find It Hard To Grow The Dividend
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. In the last five years, Hilltop Holdings' earnings per share has shrunk at approximately 4.1% per annum. 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.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Hilltop 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.