For investors aiming to build a portfolio that creates steady passive income, a strict screening process is necessary. The aim is to go past only following the highest yield and to find companies with the financial durability to maintain and increase their dividends over time. A solid method involves filtering for stocks that show a high total dividend quality score, supported by good profitability and a sound balance sheet. This method helps to sidestep the frequent mistake of a high yield that is only a sign of a falling share price and an unstable payout. One stock that appears from such a strict screen is HNI CORP (NYSE:HNI), a maker of workplace furnishings and residential building products.
A Good Dividend Profile
HNI Corp. makes a strong case for dividend-focused investors, mainly because of its high ChartMill Dividend Rating of 8 out of 10. This rating combines several important dividend health measures into one, practical score.
- Appealing and Competitive Yield: The company now provides a dividend yield of 3.22%. This is much higher than the industry average of 0.93% and also exceeds the wider S&P 500's average yield of about 1.87%. For income investors, this gives a notable starting yield.
- Dependable History: Consistency is critical in dividend investing. HNI has built a dependable history, having paid and, significantly, not reduced its dividend for at least ten straight years. This history shows management’s dedication to giving capital back to shareholders through different market periods.
- Maintainable Payout with Growth Possibility: The maintainability of a dividend is often judged by the payout ratio. HNI pays out around 44.6% of its earnings as dividends, which is seen as workable and leaves plenty of room to put money back into the business and handle downturns. Also, while the dividend itself has increased at a small yearly rate of 3.58%, the company’s earnings are forecast to increase at a quicker speed. This difference indicates the current dividend increase is maintainable and could speed up if earnings forecasts happen.
This high dividend rating is important for the screening strategy because it automatically judges these factors—yield, history, and maintainability—protecting against the "value traps" frequently linked with outwardly high-yielding stocks.
Supported by Profitability and Financial Soundness
A high-caliber dividend is only as good as the company behind it. This is why the screening rules require acceptable scores in profitability and financial soundness, areas where HNI also performs well. The company has a ChartMill Profitability Rating of 8 and a Health Rating of 7.
Profitability Advantages: HNI is a basically profitable business. Its return measures are notable, with a Return on Invested Capital (ROIC) of 12.16% and a Return on Equity (ROE) of 16.94%, both putting it in the top group of its industry. Also, its margins have shown good directions, with better profit, operating, and gross margins over recent years. Durable and increasing profitability is the source that pays for dependable dividend payments, making this a required base for any serious dividend stock.
Financial Soundness Evaluation: The company’s financial soundness is good, marked by durable solvency. HNI has a low Debt-to-Equity ratio of 0.40 and a very durable Debt-to-Free-Cash-Flow ratio of 1.80, showing it could in theory pay off all its debt with less than two years of cash flow. Its Altman-Z score of 3.56 points to a low short-term chance of financial trouble. While some liquidity ratios, like the quick ratio, are less strong, the fundamental report states that this is judged in light of the company's very good solvency and profitability, and is normal in its industry. A sound balance sheet makes sure the company can keep its operations and its dividend even during economic declines, which is exactly why it is a main filter in the screening process.
Valuation and Growth Setting
From a valuation view, HNI seems fairly priced, which increases its appeal. With a P/E ratio of 12.07 and a forward P/E of 10.39, the stock is valued lower than more than 85% of its industry group and the wider market. When combined with an estimated earnings increase rate of over 15% each year, the valuation seems even more appealing. This mix of a fair price, a durable dividend, and expected increase fits well with a total-return method to dividend investing.
A Candidate for More Study
HNI CORP shows the kind of stock a strict dividend screening process tries to find: one with an appealing and well-backed yield, a history of shareholder returns, and the financial strength to keep doing so. The company’s high ratings in dividend quality, profitability, and health form a united picture of a durable business. A complete breakdown of these fundamental factors is available in the full ChartMill Fundamental Analysis Report for HNI.
For investors aiming to build a list of similar possible candidates, the screening method that found HNI can be a beginning point for more study. You can investigate and adjust the "Best Dividend Stocks" screen yourself to find other companies that meet these strict rules for dividend maintainability.
This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on current data and past performance, which is not indicative of future results. Investors should conduct their own research and consider their individual financial circumstances before making any investment decisions.
