Last update on 2024-06-27

Heritage Commerce (HTBK) - Dividend Analysis (Final Score: 4/8)

Heritage Commerce (HTBK) - Dividend Analysis reveals a 4/8 score, evaluating dividend performance through an 8-criteria scoring system. Find out more!

Short Analysis - Dividend Score: 4

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

The dividend analysis of Heritage Commerce (HTBK) explores its performance through an 8-criteria system. With a score of 4, the evaluation indicates mixed stability and performance in dividend policy: **Dividend Yield:** At 2.621%, it’s slightly below the industry average (2.76%) with historic fluctuations. This recent decline from 4% to 2.621% is concerning. **Growth Rate:** Numerically above 5% due to outliers, but wild fluctuations and cuts suggest inconsistent growth. **Payout Ratio:** Average of 37.13% is below the 65% threshold, showing efficient capital management, though some years were highly unstable. **Covered by Cash Flow:** Generally positive trend in covering dividends with free cash flow, peaking in 2020 but slightly decreasing recently. **Stability:** The company has not provided a stable dividend over its history, with notable gaps. **Longevity:** Hasn't paid dividends consistently for over 25 years, only steady since 2005. **Buybacks:** Irregular buybacks signify strategic but inconsistent approach, raising concerns about long-term benefits. Overall, HTBK shows modest dividend reliability with some strong but many weak areas.\

Insights for Value Investors Seeking Stable Income

Investors should exercise caution with Heritage Commerce (HTBK). Its recent lower-than-average dividend yield, inconsistent growth rates, and past lapses in dividend payouts suggest a need for cautious optimism. While the positive average payout ratio and some solid cash flow coverage provide confidence, the company’s inability to maintain stable long-term dividends and sporadic stock buybacks are potential red flags. For those seeking steady and reliable dividend income, it may be more prudent to look at other options. However, HTBK could be suitable for investors who can handle higher risk for possibly moderate dividend returns.

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 measures how much a company pays out in dividends relative to its stock price. It is essential as it indicates the return on investment from dividends alone. Investors typically seek higher dividend yields as a sign of profitable investments.

Heritage Commerce (HTBK) has a dividend yield of 2.621%, slightly below the industry average of 2.76%. Historically, HTBK has shown significant fluctuations in its dividend yield over the past 20 years, from as low as 0% to as high as 5.8625% in 2020. The current yield, although slightly below the industry average, suggests that HTBK offers competitive returns through dividends, albeit the returns are not at the top-tier compared to industry peers. The decline from 4% in 2022 to 2.621% in 2023 could be seen as a negative trend, indicating reduced dividend payouts or increased stock price. This warrants close monitoring by investors. Considering the 2009 financial crisis impact and recent performance, HTBK’s ability to maintain yields close to the industry average spells modest investor confidence in its resilience and dividend policy.

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

The Dividend Growth Rate is higher than 5% in the last 20 years

The Dividend Ratio values fluctuate wildly over the years presented, with significant peaks and valleys. To determine if the Dividend Growth Rate is higher than 5% on average, it is crucial to look beyond the arithmetic average of 954.20% as this includes extraordinary highs and abnormal values. For instance, 2006 shows an exceptionally high dividend ratio of 19,900%, which drastically skews the average. A more insightful approach would involve examining the dividend growth in more stable periods and excluding outliers. If we consider the more stable years, we still see a pattern of dividend cuts and eliminations, which isn't a favorable trend. Therefore, on average, although numerically above 5%, these substantial fluctuations and recent negative values indicate the company struggles to maintain consistent dividend growth. This trend is overall bad for consistent dividend income investors as it suggests unpredictable dividend performance.

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

A company's average payout ratio should ideally be lower than 65% over time to ensure dividend sustainability. This implies the company retains enough profits to reinvest in its business.

The average payout ratio for Heritage Commerce (HTBK) over the past 20 years stands at approximately 37.13%, which is well below the 65% threshold. This trend is generally favorable as it indicates that the company is likely managing its capital efficiently and retaining adequate earnings for business reinvestment and growth. However, it is noteworthy that there were years like 2008 and 2020 where the payout ratio sharply increased to 218.281% and 87.6158%, respectively, which raises flags about the company’s dividend consistency. Nevertheless, these spikes seem to be anomalies rather than the norm given the overall average.

Dividends Well Covered by Earnings?

Explain the criterion for Heritage Commerce (HTBK) and why it is important to consider

Dividends are well covered by the earnings is an important metric because it indicates the sustainability of dividend payments. If earnings consistently exceed the dividends paid out, the company is less likely to face financial strain in continuing its dividend payouts.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is crucial as it indicates a company's ability to sustain its dividend payments without compromising its financial stability.

Heritage Commerce (HTBK) showcases a generally positive trend in terms of covering its dividends with free cash flow. Starting from 2003 through 2023, HTBK has shown noticeable improvement, especially after 2009. The coverage ratio turned positive and saw a marked increase over the years, peaking at around 0.574 in 2020. This means that in 2020, the company's free cash flow was more than half sufficient to cover its dividend payouts. Although there is a slight decrease in recent years, the ratio remained robust at around 0.4449 in 2023. This is a positive indicator that HTBK largely uses its free cash flow effectively to cover its dividend payments, highlighting the company's commitment to maintaining dividends while managing cash flow prudently.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Heritage Commerce (HTBK) and why it is important to consider

Stable dividends over the past 20 years, even amid economic downturns or business challenges, reflect a company's robustness and prudent financial management. This stability is particularly crucial for income-seeking investors as it assures them of a reliable income stream.

Dividends Paid for Over 25 Years?

Criterion 6 examines whether a company has consistently paid dividends for over 25 years. This showcases the company's enduring financial health, ability to generate cash flow, and willingness to return value to shareholders over the long run. A company meeting this criterion is often perceived as more stable and reliable by investors.

Heritage Commerce (HTBK) does not meet this criterion. According to the data provided, from 1998 to 2023, HTBK did not consistently pay dividends for over 25 years. In fact, dividends were consistently paid only from 2005 onwards. There were several years, particularly from 1998 to 2004 and intermittently during the early 2010s when no dividends were paid at all. Such inconsistency raises concerns about HTBK's ability to maintain stable cash flow and shareholder returns over long periods. This trend is unfavorable concerning the criterion and may suggest cautious optimism from investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable repurchased stocks over a long-term indicate consistent value return to shareholders and a company's confidence in its own future performance.

In the last 20 years, Heritage Commerce (HTBK) repurchased shares in 2006, 2008, 2009, 2013, 2014, and presumably 2023. The average repurchase rate stands at 5.9218 over these years. This trend reflects a non-regular but strategic approach towards share buybacks. Strategic buybacks can be seen as a positive signal if the company is making these moves during undervaluation periods or excess cash flow. The significant fluctuation in share number from 2009 to 2019 due to factors like split or major share issuance is notable, but single years of buybacks such as 2023 underscore a less consistent buyback policy. This mixed pattern may not strongly reassure consistent long-term benefits from buybacks.