For investors looking for a dependable source of passive income, a methodical screening process is needed to separate solid dividend payers from possible value traps. A frequent method includes filtering for companies that provide a good dividend and also have the fundamental financial capacity to maintain and possibly raise those payments. This method often uses combined ratings that assess a company's dividend policy, earnings power, and financial condition together. By establishing minimum standards for these ratings, investors can efficiently find stocks where the dividend is backed by a good business base, lowering the chance of future reductions and improving the possibility for total return.
HNI CORP (NYSE:HNI), a designer and provider of workplace furnishings and residential building products, recently appeared from this kind of screening method. The company’s fundamental picture indicates it merits additional examination from income-oriented investors, as it seems to combine a good yield with the operational and financial measures required for dividend continuity.
A Good Dividend Picture
Central to the screening standards is a high dividend rating, and HNI provides a ChartMill Dividend Rating of 8 out of 10. This number combines several important dividend condition indicators:
- Good and Competitive Yield: HNI provides a yearly dividend yield of 3.24%. While not the highest available, this yield is good in the present setting, exceeding the average yield of the S&P 500 (about 1.94%). It is also much higher within its Commercial Services & Supplies industry, where the average yield is only 0.90%, putting HNI in the leading group of dividend payers in its field.
- Dependable History: Steadiness is critical for dividend investors. HNI has built a dependable record, having paid a dividend for at least ten straight years without a decrease. This history shows management’s dedication to giving capital back to shareholders across different market periods.
- Maintainable Payout: The maintainability of a dividend is likely more important than its present amount. HNI’s payout ratio—the part of net income paid as dividends—is 44.63%. This level is workable, leaving more than half of earnings to be put back into the business or kept for steadiness. The fundamental report states that while the dividend itself has increased at a slow yearly rate of 3.58%, company earnings are increasing more quickly. This difference is a good sign, showing the present dividend level is well-supported and has space for future raises without stressing finances.
Backed by Good Earnings Power
A high dividend rating by itself is insufficient; it must be supported by a profitable company. A business cannot generously distribute profits it does not make. This is why the screening process also required a satisfactory profitability rating, a section where HNI does well with a score of 8.
The company’s profitability measures are good, often ranking it well against industry counterparts. Its Return on Invested Capital (ROIC) of 12.16% and Return on Equity (ROE) of 16.94% each do better than over 80% of its industry competitors. These numbers show that HNI is very effective at creating profits from the capital used in the business. Also, important margins have shown upward movements. The Gross, Operating, and Profit Margins have all gotten better in recent years, hinting at successful cost control and pricing ability. This basic earnings power is the source that pays for the dividend and gives a cushion during economic slowdowns.
A Base of Financial Condition
The third part of the screening method is financial condition, which makes sure the company is not carrying too much debt and can handle short-term issues without endangering its dividend. HNI receives a satisfactory Health Rating of 7. The examination shows a company with very good solvency, a key element for long-term dividend maintainability.
- Good Solvency: HNI’s Altman-Z score of 3.59 shows a low short-term risk of financial trouble and is higher than 72.5% of industry counterparts. Its Debt-to-Equity ratio of 0.40 shows a reasonable capital structure that is not too dependent on loans.
- Better Cash Flow Production: Maybe most notably, HNI’s Debt to Free Cash Flow (FCF) ratio is a very good 1.80. This means it would take the company under two years of its present free cash flow to repay all its existing debt. This ratio is higher than 82.5% of the industry and emphasizes a strong ability to handle debts and fund shareholder returns from internal cash production.
While the report states the company’s quick ratio is lower than preferred, indicating closer liquidity for immediate debts, this is viewed alongside the very good solvency and profitability scores. For an established, cash-producing business like HNI, good overall financial condition often lessens worries about short-term liquidity ratios.
Worth and Growth Setting
Beyond the main dividend, profitability, and condition measures, HNI presents an interesting worth case. The stock seems low-priced relative to both its own future earnings possibility and the wider market. With a forward Price-to-Earnings (P/E) ratio of 10.82, it is valued more appealingly than 90% of its industry counterparts and is at a large discount to the S&P 500’s forward P/E. Analysts project earnings per share to increase by over 15% each year in the coming years, which, when joined with the dividend, provides a believable route for total shareholder return.
A full outline of HNI’s fundamental ratings, including the complete examination behind its scores for Dividend, Profitability, Health, Worth, and Growth, is available in its detailed fundamental report.
Conclusion
HNI Corp. shows the kind of company a methodical dividend screening method intends to find. It provides a yield that is both competitive and, more significantly, seems maintainable. This maintainability is directly backed by the company’s good earnings power—which supplies the cash to fund payments—and its solid financial condition—which provides steadiness across economic periods. The appealing worth and positive earnings growth view add more dimensions of possible attraction. For investors building a portfolio for income, HNI stands as a candidate where the dividend is not just a headline number but is built into a fundamentally sound business model.
Curious about finding other companies that fit similar standards for dividend maintainability, profitability, and financial condition? You can review the complete "Best Dividend Stocks" screen and modify the filters to your own preferences using this link.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
