Did HP just issue stark dividend darning for investors? | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

HP Inc. delivered what investors love to see: another dividend hike. But buried in the announcement was a warning that’s getting lost in the celebration.

The tech hardware giant recently raised its quarterly dividend to $0.30 per share, extending a streak that dates back to the company’s 2015 separation. That’s 10 straight years of increases, which sounds impressive until you read the fine print.

While the dividend is safe for now, headwinds are mounting. Notably, rising memory costs and softness in the consumer PC market could limit how much HP can boost payouts going forward.

For retail investors banking on that 6.4% yield, this matters more than the headline number suggests.

HP is wrestling with slowing growth and cost inflation

Courtesy of Amazon

Does HP have a safe dividend payout ratio?

According to Fiscal.ai data, HP (HPQ) has raised its annual dividend from $0.50 per share in 2016 to $1.20 per share in 2026, reflecting annual growth of over 9%.

The hardware heavyweight ended fiscal 2025 with free cash flow of $2.9 billion, indicating a sustainable payout ratio of 41%.

HP Dividend & Financial Metrics at a Glance

Quarterly dividend: $0.30 per share
Annual dividend: $1.20 per share
Current dividend yield: 6.4%
Years of consecutive increases: 10 (since 2015 separation)
Last 10-year dividend growth CAGR: 9.2%
Fiscal 2025 free cash flow: $2.9 billion
Dividend payout as % of free cash flow: Approximately 38%

Analysts forecast FCF to increase to $3.60 per share in fiscal 2030. Moreover, the annual dividend is forecast to grow to $1.43 per share in 2030.

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It’s evident that HP’s dividend growth rate will decelerate significantly over the next five years. Let’s see why.

Memory costs create earnings headwind

HP’s warning centers on a problem the entire PC industry is facing: skyrocketing memory prices.

The company expects memory cost increases to slash earnings by roughly $0.30 per share in the second half of fiscal 2026. That’s about a 90-basis-point hit to Personal Systems margins, which represents a significant share of HP’s profitability.

During the UBS Conference, HP CFO Karen Parkhill told analysts:

Memory costs currently account for 15% to 18% of a typical PC’s total cost. The recent surge occurred faster than HP anticipated, prompting the company to adopt a prudent approach to guidance.

Here’s the thing: HP has dealt with memory cycles before. It has long-term agreements with suppliers spanning one to two years and relationships that give it supply advantages. But this cycle is different.

The rate of increase caught even seasoned executives off guard. Parkhill acknowledged that the team is being conservative in its outlook, as it is guiding for a full year while expecting most of the impact to occur in the second half of fiscal 2026.

HP plans to mitigate the damage through several strategies:

Qualifying lower-cost suppliers,
Redesigning products with reduced memory configurations,
Accelerating AI-enabled cost savings programs, and
Raising prices where possible.

But here’s where dividend investors need to pay attention. Those mitigation efforts take time, and pricing power isn’t infinite, especially when consumers are already pulling back.

A slow AI PC replacement cycle

Wall Street‘s bull case for HP hinges on the Windows 11 refresh cycle and adoption of AI-powered PCs.

The problem? It’s not happening as fast as optimists predicted.

HP estimates that about 60% of the installed base has moved to Windows 11, with 40% still running the older operating system. That sounds promising until you dig deeper.

The fastest conversions happened in large enterprises, particularly in North America. What’s left are small and medium-sized businesses and customers in Europe and Asia, who tend to be more price-sensitive and slower to upgrade.

CEO Enrique Lores said AI PCs now represent more than 30% of shipments, up from previous quarters, with expectations to hit 40% to 50% in fiscal 2026.

But that growth is running up against rising component costs, making these premium devices even more expensive.

Consumer demand is already showing cracks. During the UBS conference, analysts pressed Lores on whether the low-end consumer market represents the “most problematic part” going forward.

Lores response was telling:

Translation: The customers who haven’t upgraded yet are the ones least likely to stomach higher prices.

Free cash flow provides a cushion

HP generated$2.9 billion in free cash flow for fiscal 2025 and expects $2.8 billion to $3 billion in fiscal 2026.

That’s roughly flat despite margin pressure, thanks to improvements in working capitaland the favorable cash conversion cycle associated with a growing PC business.

HP maintains a straightforward capital allocation framework: return 100% of free cash flow to shareholders over time, provided gross leverage remains below 2x, and there are no better return opportunities.

Right now, gross leverage sits slightly above 2x, but the company has earmarked cash to pay down a debt maturity coming this summer. That calculation matters because it allows HP to continue buying back stock while maintaining its current credit rating.

During the UBS conference, Parkhill was direct when asked about share repurchases versus the dividend: “Particularly where our stock is right now, we like repurchasing because a great ROI.”

That indicates management views the stock as undervalued, which is bullish. But it also reveals the trade-off dividend investors face. Every dollar spent on buybacks is a dollar that could have gone toward a bigger dividend increase.

The print business adds a layer of uncertainty

HP’s printing segment isn’t making things easier.

Revenue in Q4 was down 4%, driven by market softness and delayed purchasing decisions across regions. Customers chose not to replace their printing equipment.

The company is pivoting toward Big Tank printers and subscription models, such as its All-In Plan, which now has more than 1 million subscribers and generates nearly $1 billion in annual revenue.

But traditional office printing, which generates higher margins, remains under pressure. Japanese competitors are benefiting from a favorable yen exchange rate, making it harder for HP to maintain pricing discipline without losing share.

In the fourth quarter, HP lost some commercial print share after raising prices to offset tariff costs. While supply share actually increased, the hardware side took a hit.

What dividend investors need to know

HP’s 10th consecutive dividend increase sounds great in a press release. But the context matters more than the streak.

HP is navigating multiple headwinds simultaneously, which include:

A slower-than-expected refresh cycle
Memory cost inflation
Slowing demand in the print business
Ongoing tariff costs absorbed $700 million in the last fiscal year.

Management is being upfront about the challenges, which is better than sugarcoating the situation. But when a CFO uses phrases like “prudent approach” and “prolonged softness,” dividend investors should pay attention.

The 6.4% yield is attractive to income-seeking investors. Currently, HP’s free cash flow can sustain the current payout. However, you should not expect aggressive dividend hikes while these headwinds persist.

If you own HP for income, the dividend is likely safe. Just don’t count on double-digit percentage increases until the memory cycle turns and the AI PC story starts delivering on its promise.