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If you can hang around for 131 years, you must be doing something right. Haverty Furniture Companies (NYSE: HVT), must be doing something right. It first sprouted business roots in 1885. They’ve been spreading ever since.
As the name implies, Haverty’s business is furniture. Haverty is a small-cap ($450-million market cap) full-service home-furnishings retailer with 123 showrooms spread across 16 states, mostly in the South and Midwest. Haverty provides its customers with a wide selection of quality furniture in middle to upper-middle price ranges.
A yawn might be the initial reaction, and I understand that reaction to a company like Haverty. Yes, Haverty’s business is pedestrian; you might even say it’s dull. True enough, but Haverty’s business is also solid and growing, and these traits are universally attractive to investors. Haverty’s EPS and revenue continually and persistently trend higher.
In 2012, Haverty posted EPS of $0.65 on revenue of $670.4 million; for the trailing 12 months, it posted EPS of $1.20 on revenue of $817.1 million. Since 2010, revenue has grown at a 3.4% average annual rate, but EPS has grown at a 10.8% average annual rate.
But there’s more, because revenue and EPS aren’t the only important valuation metrics adhering to an upward trajectory. Another important metric — the dividend — adheres to the same trajectory.
The Haverty Dividend . . . and More
Haverty has paid a dividend for the past 81 of its 131 years. Investors can count on a Haverty dividend increase every year or two. The latest increase, back in August, increased the payout 20% to an annual rate of $0.48 per share.
The regular $0.48-per-share annual dividend produces a 2.2% yield based on the current market price. The yield is respectable, but hardly inspiring. This 2.2% yield is the yield you’ll find listed on most of the major financial portals.
The 2.2% dividend yield listed on the major financial portals is also the wrong yield. Haverty shares actually yield closer to 7% than they do to 2%. Unbeknownst to most investors, Haverty supplements its regular dividend with an annual special dividend. The latest special dividend ̶ $1 per share ̶ lifts the annual Haverty dividend payment to $1.48 per share. It also lifts the Haverty dividend yield to 6.9%.
To belabor the obvious, dividends are an important variable in the total return calculation. A 2.2% dividend yield is nice; a sustainable 6.9% dividend yield is exceptional. But it’s exceptional only if the company can afford it. You don’t want a high-yield dividend to mortgage the future. You want it to enhance the value proposition. Haverty can afford its dividend(s), so the dividends enhance the value proposition.
A dividend is only as strong as the balance sheet that backs it. Haverty’s balance sheet is both strong and liquid: Total debt is less than 19% of equity; cash per share equals $3.62.
Value-Creating Propositions
What’s more, Haverty’s past dividends ̶ special and regular ̶ have been value-creating propositions: more investor income prompted additional share-price appreciation.
Here’s what Clarence Smith, chairman, president and CEO of Haverty Furniture, said in the accompanying press release for the most recent special dividend:
The decision of our board of directors to pay a special dividend together with the stock repurchases we have made year to date represents approximately $42.3 million towards our ongoing efforts to provide returns to our stockholders. These actions also demonstrate confidence in our ability to generate sufficient cash to execute our strategies for growing Haverty’s business and increasing stockholder value.
Recent Haverty dividend payments, along with recent strong third-quarter financial results, certainly support Smith’s contention. In turn, Smith’s contention furthers my belief that Haverty’s latest special dividend will lead to not only more investor income, but to more share-price appreciation.