Heritage Insurance Holdings (NYSE:HRTG) will pay a dividend of $0.06

Heritage Insurance Holdings, Inc. (NYSE: HRTG) announced that it will pay a dividend of $0.06 per share on July 5. Based on this payment, the dividend yield on the company’s stock will be 6.9%, which is an attractive increase in returns for shareholders.

While the dividend yield is important for income investors, it’s also important to take into account any large changes in share price, as this will generally outweigh any gains from distributions. Heritage Insurance Holdings stock price is down 37% in the past 3 months, which is not ideal for investors and may explain a sharp increase in dividend yield.

Check out our latest analysis for Heritage Insurance Holdings

Heritage Insurance Holdings may struggle to maintain dividend

If the payouts aren’t sustainable, a high return for a few years won’t matter much. Although it does not generate a profit, Heritage Insurance Holdings still pays a dividend. The company has yet to generate cash flow, so the sustainability of the dividend is certainly questionable.

Over the next year, EPS is expected to increase by 80.5%. While it’s good to see revenue moving in the right direction, it still looks like the business won’t achieve profitability. Unfortunately, for the dividend to stay at current levels, the company absolutely needs to get there sooner rather than later.

NYSE: HRTG Historic dividend May 27, 2022

Heritage Insurance Holdings continues to build its balance sheet

Even though the company has been paying out a consistent dividend for some time, we’d like to see a few more years before we feel comfortable counting on it. The dividend increased from US$0.20 in 2016 to the last annual payment of US$0.24. This equates to a compound annual growth rate (CAGR) of approximately 3.1% per year during this period. Modest dividend growth is good to see, especially as payouts are relatively stable. However, the payment history is relatively short and we wouldn’t want to rely too much on this dividend.

Dividend growth potential is fragile

Some investors will be eager to buy some of the company’s stock based on its dividend history. Unfortunately, things are not as good as they seem. Earnings per share at Heritage Insurance Holdings have declined 53% annually over the past five years. A sharp drop in earnings per share is not great from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall enough. However, next year actually looks positive, with profits expected to increase. We’d just wait for it to become a pattern before we get too excited.

Heritage Insurance Holdings’ dividend doesn’t look good

In summary, while it is good to see that the dividend has not been cut, we believe that at current levels the payout is not particularly sustainable. The company’s earnings are not high enough to make such large distributions, nor are they supported by strong growth or consistency. All in all, it doesn’t excite us from a revenue standpoint.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic one. Meanwhile, despite the importance of dividend payouts, these are not the only factors our readers should be aware of when evaluating a company. To this end, Heritage Insurance Holdings has 3 warning signs (and 1 that can’t be ignored) that we think you should know about. Heritage Insurance Holdings not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.