Heartland Group Holdings Limited (NZSE:HGH) has announced that it will be increasing its dividend on the 16th of March to NZ$0.065. This will take the annual payment from 4.9% to 6.5% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Heartland Group Holdings

Heartland Group Holdings' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Heartland Group Holdings was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

The next year is set to see EPS grow by 6.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being which brings it into quite a comfortable range. historic-dividend

Heartland Group Holdings' Dividend Has Lacked Consistency

Looking back, Heartland Group Holdings' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 9 years was NZ$0.04 in 2013, and the most recent fiscal year payment was NZ$0.11. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Heartland Group Holdings' EPS has declined at around 100% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.



Heartland Group Holdings' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Heartland Group Holdings' payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Heartland Group Holdings has 3 warning signs (and 1 which is a bit concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.