Last update on 2024-06-27

Heritage Financial (HFWA) - Dividend Analysis (Final Score: 4/8)

Analyze Heritage Financial's (HFWA) dividend performance and stability with an 8-criteria scoring system. Final score: 4/8.

Short Analysis - Dividend Score: 4

We're running Heritage Financial (HFWA) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Heritage Financial (HFWA) has been assessed on a set of 8 criteria regarding its dividend policy. The key takeaways from the analysis include: 1. **Dividend Yield**: HFWA's dividend yield of 4.1141% is significantly higher than the industry average of 2.76%, indicating attractive returns for income-focused investors. However, historical yield fluctuations should be noted. 2. **Dividend Growth Rate**: HFWA falls short of the desired 5% annual growth rate, with a 20-year average of only 1.48%. This shows inconsistency and insufficient growth. 3. **Payout Ratio**: The 20-year average payout ratio is 53.66%, which is below the 65% threshold, suggesting a disciplined approach. However, high volatility in some years requires a closer look. 4. **Dividend Coverage by Earnings**: The coverage ratio often falls below the ideal threshold of 2, indicating challenges in sustaining dividends from earnings alone, especially in economic downturns. 5. **Dividend Coverage by Cash Flow**: Consistently below 1.0, indicating that dividends are not sufficiently covered by free cash flow and may rely on other liquidity sources. 6. **Stability of Dividends**: Post-2010, dividends have been stable and increasing, despite historical volatility during the 2008-09 financial crisis. 7. **Long-Term Dividend Payments**: HFWA has a history of paying dividends for over 25 years, reflecting financial stability and a commitment to shareholders. 8. **Stock Repurchases**: Reliable stock repurchases suggest HFWA's confidence in its financial health and commitment to shareholder returns.

Insights for Value Investors Seeking Stable Income

Given the analysis, Heritage Financial (HFWA) shows a mixed but generally positive trend in its dividend policy. Its high dividend yield and over 25 years of consistent dividend payments are attractive features. However, potential investors should be cautious due to the low average annual growth rate, volatility in dividend yield, payout ratios, and coverage issues. HFWA could be a viable option for income-focused investors preferring high yields but less concerned with growth. However, a more in-depth analysis is advised, especially focusing on dividend coverage ratios and historical volatility before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's important to consider because it's an indicator of the return on investment a shareholder can expect from dividends alone.

Heritage Financial (HFWA) boasts a dividend yield of 4.1141%, significantly higher than the industry average of 2.76%. Over the past 20 years, HFWA's dividend yield has experienced substantial fluctuations, ranging from a low of 0% in 2010 to a high of 6.2857% in 2008. Notably, there was a dramatic decrease during the financial crisis of 2008, where the dividend yield plunged to just 0.7257% in 2009, before completely halting in 2010. However, HFWA has gradually recovered since then, with a consistent upward trend in recent years culminating in the current 4.1141%. The higher yield suggests that HFWA is currently providing a better return on dividends compared to its industry peers, which can be attractive to income-focused investors. The trend is good, indicating robust dividend performance, but the historical volatility should be taken into consideration.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth in dividends paid to shareholders and is crucial for evaluating income stability and investment potential.

The Dividend Growth Rate for Heritage Financial (HFWA) in the last 20 years shows fluctuating values, with some significant drops, notably -100% in 2010, -87.013% in 2009, and -52.2727% in 2016. The average Dividend Ratio over this period is approximately 1.48%, well below the 5% criterion. While there has been positive growth in certain years, the overall trend shows insufficient and inconsistent dividend growth. This inconsistency and the average falling short of the 5% target suggest that Heritage Financial does not meet a robust standard for sustained dividend growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is the percentage of earnings paid to shareholders in dividends. A payout ratio lower than 65% indicates a company is reinvesting enough of its earnings into the business.

The average payout ratio of Heritage Financial (HFWA) over the last 20 years is 53.66%, below the 65% threshold, indicating a disciplined approach towards profit distribution. However, the payout ratio has shown high volatility, with some years exceeding 100%, like in 2008 and 2011. This could warrant further investigation as it may signal inconsistent earnings or strategic decisions to maintain dividend payments despite lower profits. The 0% payouts in 2010 and 2023 suggest periods of retained earnings or operational adjustments. Overall, the trend is positive but calls for deeper analysis regarding the years with anomalies.

Dividends Well Covered by Earnings?

This criterion assesses whether a company's dividends are adequately covered by its earnings, ensuring sustainable dividend payments.

Analyzing the trend for Heritage Financial (HFWA) from 2003 to 2023, we notice fluctuations in the dividend coverage ratio. A healthy dividend coverage ratio is typically above 2, indicating that a company earns twice what it pays out in dividends. However, HFWA's ratio frequently falls below this threshold, indicating periods where earnings might not sufficiently cover dividends. Notably, in 2009, 2010, and recently in 2023, the coverage ratio dropped dramatically to 0 or near 0, suggesting unsustainable dividends. Additionally, years like 2008 and 2011 showcased ratios close to or above 1, reflecting more balanced, but not ideal, coverage. This trend raises concerns about the sustainability of HFWA's dividend policy, especially during economic downturns or operational challenges.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow illustrates whether a company's free cash flow is sufficient to cover its dividend payouts. This ratio ensures that a business is generating enough cash to support its dividend payments without borrowing or using reserves. A ratio above 1 or 100% indicates sufficient coverage.

Looking at the data for Heritage Financial (HFWA), the Dividend covered by Cashflow ratio has consistently been below 1 (or 100%) over the years. Here are some key observations: 1. **Historical Average**: For most of the years, the ratio hovers around 0.3 to 0.45, indicating that on average, only 30-45% of the dividend payouts are covered by free cash flow. While this is not optimal, it suggests that HFWA has had to rely on other sources of liquidity or potentially cutting dividends during tougher years. 2. **Recent Trends**: The ratio has somewhat declined in 2022 and 2023 to around 0.31 and 0.32 respectively. This is concerning as it indicates a decreasing ability to cover dividends from free cash flow. 3. **Best Years**: The ratio peaked in 2006 at approximately 0.55, implying 55% coverage during one of their best years. However, the trend hasn’t seen such peaks consistently. **Discussion:** While Heritage Financial's current situation isn't dire, a dividend coverage ratio below 1 suggests that the company doesn’t generate enough free cash flow to comfortably offset its dividend payments. This trend may put the company at risk of having to adjust its dividend policy, potentially impacting investor sentiment and share price. For potential investors or current shareholders, it's crucial to monitor this trend as prolonged deficiency, especially during economic downturns, can result in reduced dividend payouts or increased financial stress for the company. Actionable Insight: HFWA should aim to improve its free cash flow generation to ensure better coverage of its dividends to maintain investor trust and financial stability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends indicate a company's consistent ability to generate profits and reward shareholders.

From 2003 to 2023, Heritage Financial has experienced several fluctuations in dividends per share. A significant drop occurred from 2007 ($0.84) to 2008 ($0.77), a decrease of approximately 19.2%. The sharpest decline was from 2008 to 2009 when dividends fell from $0.77 to $0.1, which is an 87% drop. Post-2010, however, dividends stabilized and showed an increasing trend again, demonstrating a recovery in financial health. Despite the substantial drop during the financial crisis of 2008-2009, the company has since managed to restore and grow its dividends. Current income-seeking investors should note that while there was an unprecedented drop during a global crisis, the overall trend in recent years has been positive.

Dividends Paid for Over 25 Years?

Examine if the company has consistently paid dividends for over 25 years. Consistent dividend payment is a sign of financial stability.

Heritage Financial (HFWA) has paid dividends consistently for over 25 years as evidenced by the years listed: 1998 to 2023. The dividend payments have shown a general increasing trend. Although there was a significant reduction in 2009 and no payments in 2010, which were likely due to the economic downturn during the financial crisis, the company resumed and increased its dividends from 2011 onwards. This overall trend of consistent dividends reflects positively on the financial stability and commitment to returning value to shareholders. Thus, the trend of dividend payments is generally good.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Heritage Financial (HFWA) and why it is important to consider

Reliable stock repurchases signal confidence in the company's financial health and commitment to returning value to shareholders. It is seen as a positive indicator.