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Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that HomeStreet, Inc. (NASDAQ:HMST) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 6th of August in order to be eligible for this dividend, which will be paid on the 24th of August.
HomeStreet’s next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Based on the last year’s worth of payments, HomeStreet stock has a trailing yield of around 2.3% on the current share price of $26.44. If you buy this business for its dividend, you should have an idea of whether HomeStreet’s dividend is reliable and sustainable. So we need to investigate whether HomeStreet can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. HomeStreet paid out just 14% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re encouraged by the steady growth at HomeStreet, with earnings per share up 7.7% on average over the last five years.
Given that HomeStreet has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
The Bottom Line
From a dividend perspective, should investors buy or avoid HomeStreet? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, HomeStreet looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
On that note, you’ll want to research what risks HomeStreet is facing. Case in point: We’ve spotted 1 warning sign for HomeStreet you should be aware of.
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.