Heritage Financial's (NASDAQ:HFWA) Dividend Will Be US$0.21

Heritage Financial Corporation (NASDAQ:HFWA) will pay a dividend of US$0.21 on the 18th of May. This means the dividend yield will be fairly typical at 3.2%.

See our latest analysis for Heritage Financial

Heritage Financial's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Heritage Financial was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 26.6% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 48%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was US$0.12, compared to the most recent full-year payment of US$0.84. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Heritage Financial has been growing its earnings per share at 15% a year over the past five years. Heritage Financial definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Heritage Financial Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Heritage Financial that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.