Heritage Commerce (NASDAQ:HTBK) Has Announced A Dividend Of $0.13

The board of Heritage Commerce Corp (NASDAQ:HTBK) has announced that it will pay a dividend of $0.13 per share on the 22nd of May. This makes the dividend yield 5.8%, which will augment investor returns quite nicely.

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Heritage Commerce's Dividend Forecasted To Be Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Having distributed dividends for at least 10 years, Heritage Commerce has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 76%, which means that Heritage Commerce would be able to pay its last dividend without pressure on the balance sheet.

The next year is set to see EPS grow by 12.9%. If the dividend continues along recent trends, we estimate the future payout ratio will be 72%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for Heritage Commerce

Heritage Commerce Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $0.20, compared to the most recent full-year payment of $0.52. This means that it has been growing its distributions at 10% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Heritage Commerce has only grown its earnings per share at 2.8% per annum over the past five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Heritage Commerce that investors need to be conscious of moving forward. Is Heritage Commerce not quite the opportunity you were looking for? Why not check out our selection of top 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.