Heartland Group Holdings Limited's (NZSE:HGH) dividend is being reduced from last year's payment covering the same period to NZ$0.0235 on the 21st of March. The dividend yield of 8.2% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Heartland Group Holdings

Heartland Group Holdings' Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Heartland Group Holdings has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is very worrying for shareholders, as this shows that Heartland Group Holdings will not be able to sustain its dividend at its current rate.

The next 3 years are set to see EPS grow by 167.1%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 59% over the same time period, which would make us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. There hasn't been much of a change in the dividend over the last 10 years. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Heartland Group Holdings' EPS has fallen by approximately 21% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

An additional note is that the company has been raising capital by issuing stock equal to 31% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Heartland Group Holdings (of which 1 doesn't sit too well with us!) you should know about. Is Heartland Group Holdings 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.