HMN Financial, Inc. (NASDAQ:HMNF) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase HMN Financial's shares before the 16th of May to receive the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.32 to shareholders. Last year's total dividend payments show that HMN Financial has a trailing yield of 1.7% on the current share price of US$19.35. If you buy this business for its dividend, you should have an idea of whether HMN Financial's dividend is reliable and sustainable. So we need to investigate whether HMN Financial can afford its dividend, and if the dividend could grow.

Check out our latest analysis for HMN Financial

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. HMN Financial paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit HMN Financial paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. HMN Financial's earnings per share have fallen at approximately 7.1% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. HMN Financial has delivered 15% dividend growth per year on average over the past two years.

To Sum It Up

Should investors buy HMN Financial for the upcoming dividend? HMN Financial's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

If you're not too concerned about HMN Financial's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 3 warning signs for HMN Financial (1 is significant!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.