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.

Our free stock report includes 1 warning sign investors should be aware of before investing in Heritage Commerce. Read for free now.

Heritage Commerce's Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Heritage Commerce has established itself as a dividend paying company with over 10 years history of distributing 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.

Over the next year, EPS is forecast to expand by 12.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the future payout ratio being 72% which brings it into quite a comfortable range.

Check out our latest analysis for Heritage Commerce

Heritage Commerce Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.20 in 2015 to the most recent total annual payment of $0.52. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year 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.

Heritage Commerce May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 2.8% per annum over the last five years, which admittedly is a bit slow. Heritage Commerce's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. 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.

Our Thoughts On Heritage Commerce's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Heritage Commerce that you should be aware of before investing. Is Heritage Commerce not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.