Hearts and Minds Investments Limited (ASX:HM1) will increase its dividend on the 12th of April to AU$0.14, which is 13% higher than last year. This makes the dividend yield 4.6%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Hearts and Minds Investments' stock price has reduced by 31% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for Hearts and Minds Investments

Hearts and Minds Investments' Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even though Hearts and Minds Investments is not generating a profit, it is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

If the trend of the last few years continues, EPS will grow by 73.3% over the next 12 months. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure. historic-dividend

Hearts and Minds Investments Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Company Could Face Some Challenges Growing The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Hearts and Minds Investments' earnings per share is up 73% on last year. We always like to see numbers like these going up, but we don't expect them to shoot up forever, especially as the company grows. While the company hasn't yet recorded a profit, the growth rates are healthy. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.



Hearts and Minds Investments' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Hearts and Minds Investments will make a great income stock. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 4 warning signs for Hearts and Minds Investments (of which 2 are significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.