Why It Might Not Make Sense To Buy Hanmi Financial Corporation (NASDAQ:HAFC) For Its Upcoming Dividend
It looks like Hanmi Financial Corporation (NASDAQ:HAFC) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 13th of November, you won't be eligible to receive this dividend, when it is paid on the 30th of November.
Hanmi Financial's upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Looking at the last 12 months of distributions, Hanmi Financial has a trailing yield of approximately 3.5% on its current stock price of $9.03. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hanmi Financial can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Hanmi Financial
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Hanmi Financial paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Hanmi Financial's 8.6% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, seven years ago, Hanmi Financial has lifted its dividend by approximately 1.9% a year on average.
Final Takeaway
Is Hanmi Financial an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Hanmi Financial's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
With that in mind though, if the poor dividend characteristics of Hanmi Financial don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 2 warning signs for Hanmi Financial (of which 1 shouldn't be ignored!) you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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