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Over the past 10 years Harvey Norman Holdings Limited (ASX:HVN) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 9.6%, and has a market cap of AU$3.7b. Should it have a place in your portfolio? Let’s take a look at Harvey Norman Holdings in more detail.

See our latest analysis for Harvey Norman Holdings

5 checks you should do on a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it the top 25% annual dividend yield payer?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

How does Harvey Norman Holdings fare?

Harvey Norman Holdings has a trailing twelve-month payout ratio of 89%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 78% which, assuming the share price stays the same, leads to a dividend yield of 8.1%. Moreover, EPS is also forecasted to fall to A$0.31 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

Relative to peers, Harvey Norman Holdings produces a yield of 9.6%, which is high for Multiline Retail stocks.

Next Steps:

Keeping in mind the dividend characteristics above, Harvey Norman Holdings is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for HVN’s future growth? Take a look at our free research report of analyst consensus for HVN’s outlook.

2. Valuation: What is HVN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HVN is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.