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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Heritage Commerce Corp (NASDAQ:HTBK) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Heritage Commerce investors that purchase the stock on or after the 7th of November will not receive the dividend, which will be paid on the 21st of November.
The company's upcoming dividend is US$0.13 a share, following on from the last 12 months, when the company distributed a total of US$0.52 per share to shareholders. Based on the last year's worth of payments, Heritage Commerce has a trailing yield of 5.4% on the current stock price of US$9.65. If you buy this business for its dividend, you should have an idea of whether Heritage Commerce's dividend is reliable and sustainable. So we need to investigate whether Heritage Commerce can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Heritage Commerce
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Heritage Commerce is paying out an acceptable 74% of its profit, a common payout level among most companies.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Heritage Commerce's earnings per share have been shrinking at 3.7% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Heritage Commerce has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.