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Harvey Norman Holdings' (ASX:HVN) Shareholders Will Receive A Smaller Dividend Than Last Year

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Harvey Norman Holdings Limited (ASX:HVN) is reducing its dividend to AU$0.15 on the 15th of November. However, the dividend yield of 7.1% is still a decent boost to shareholder returns.

See our latest analysis for Harvey Norman Holdings

Harvey Norman Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by Harvey Norman Holdings' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Over the next year, EPS is forecast to fall by 37.9%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 87%, meaning that most of the company's earnings are being paid out to shareholders.

historic-dividend
historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from AU$0.13 in 2011 to the most recent annual payment of AU$0.30. This means that it has been growing its distributions at 8.7% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Harvey Norman Holdings has been growing its earnings per share at 17% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Harvey Norman Holdings' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Harvey Norman Holdings has been making. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Harvey Norman Holdings (of which 1 can't be ignored!) you should know about. We have also put together a list of global stocks with a solid dividend.

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.

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