Holmes Place: Buy for Dividend?

Dude, let’s dive into the world of fitness and finance, specifically, the Israeli-European health club chain, Holmes Place International (HLMS:TLV). Self-proclaimed mall mole Mia Spending Sleuth, here! This company, trading on the Tel Aviv Stock Exchange, is dangling a juicy dividend in front of income-seeking investors. But is it a mirage shimmering in the desert of debt, or a genuine oasis of profit? Time to throw on my thrift-store trench coat and see if this fitness empire is built on solid ground, or just a pile of protein powder promises.

Holmes Place, founded way back in ’79, isn’t just your run-of-the-mill gym. They’ve got premium clubs for the swanky set, “energy” clubs targeting the younger crowd, and family-friendly spots. They’ve spread their fitness gospel across Europe, with a big footprint in Israel, Germany, and Austria. They’re like the Starbucks of sweat, offering a different flavor for every kind of fitness fanatic. But lately, their financial biceps have been flexing in ways that have investors scratching their heads. We’re talking about a company offering yields that seem too good to be true. Especially when some underlying metrics raise an eyebrow.

The Dividend Dilemma: Is the Payout Sustainable?

First, let’s talk about that siren song: the dividend yield. At a cool 8.10% to 8.20%, it’s enough to make any investor’s ears perk up. In a world of paltry interest rates, that kind of return is like finding a twenty in your old jeans. But hold on a sec, folks. Dig a little deeper, and some cracks start to appear in the foundation. The dividend payouts over the past decade are not on a steady upward trajectory, but rather indicate that such payouts have decreased. Decreasing dividend trends over time suggest a weakening financial position for a company, and investors looking for consistent income will tend to avoid.

Here’s where things get seriously interesting. The payout ratio, that oh-so-important metric that tells you how much of a company’s earnings are being used to pay dividends, is sitting at a whopping 105.09%. That’s not just high; that’s “Houston, we have a problem” territory. It means Holmes Place is shelling out more in dividends than it’s actually earning. Where’s that cash coming from? My trusty magnifying glass says it’s either bleeding from its accumulated reserves (think of it as raiding the company’s piggy bank) or, even worse, borrowing money to keep the dividend train chugging, a dangerous tactic that could lead to significant long-term problems. It’s like financing your lattes with your credit card—fun in the short term, disastrous down the road. Now, this doesn’t necessarily mean the sky is falling. Companies sometimes do this temporarily, especially if they anticipate a surge in future earnings. However, it’s a red flag that demands serious scrutiny.

Stock Performance vs. Underlying Earnings: A Confusing Picture

Now hold onto your yoga mats, because here’s where the plot thickens. Despite the dividend concerns, the stock price has been on a bit of a winning streak. It’s up 9.53% since April 16, 2025, with a 5.24% jump in the last two weeks alone. Zoom out, and the picture gets even rosier: a year-to-date change of nearly 38% and a 12-month surge of over 51%. What gives? The market seems to be high-fiving Holmes Place while I’m over here waving a caution flag.

This divergence between stock performance and underlying earnings is the kind of thing that keeps a spending sleuth like me up at night. It suggests investors might be focused on the short-term allure of that high dividend yield, potentially overlooking the long-term financial health of the company. They may also expect future growth. Newsflash: chasing high yields without doing your homework is a recipe for disaster.

Let’s peek at the earnings numbers. Full-year 2024 earnings per share (EPS) came in alright at ₪0.51, but the first quarter of 2025 saw a drop to ₪0.09, compared to ₪0.16 in the same period last year. That’s a significant dip, revealing the volatility of Holmes Place’s financial results. Plus, the muted stock price reaction to the full-year earnings report tells me that the market had already baked those numbers into its expectations, or that investors had been focusing on the generous dividend more so than actual earnings performance. Some analysts believe that the company’s dividend payout represents 51% of Free Cash Flow or FCF. This indicates some capacity to continue similar levels of dividend payments. Ultimately, investors should remain conservative in their approach.

Navigating the Fitness Landscape: Challenges and Opportunities

Looking ahead, Holmes Place is facing the same challenges as any business in the competitive fitness world, and a few specific to its markets. It needs to keep attracting members, innovating its offerings, and staying ahead of the latest fitness trends, or it runs the risk of losing its competitive edge. Moreover, the company’s financial health and debt management should remain core areas of investor attention.

Its diverse club portfolio (premium, energy, and family-friendly) is a strength, allowing it to target a broad range of customers. But, it needs to constantly adapt. Remember Blockbuster? They thought they had the movie rental market cornered, and then Netflix came along and changed the whole game. Holmes Place needs to be the Netflix of fitness, not the Blockbuster. The upcoming ex-dividend date is a key consideration for anyone chasing that income, but the long-term sustainability of the dividend is the real question mark. That, I believe, calls for some folks to consider doing thorough due diligence.

Here’s the thing, Holmes Place International presents a classic case of “high risk, high reward.” The company’s diversified club programs combined with high dividend yields are alluring to many investors but should not be pursued blindly. As such, investors must balance prospective gains versus the potential to lose money.