HollyFrontier (NYSE:HFC) is a sneaky high-yielding stock. At first glance investors might look at the company's current yield of 2.85% based on its regular $0.32 a share quarterly dividend and decide to take a pass in the search for a better income stock. However, HollyFrontier's regular dividend doesn't tell the whole income story. By digging a little deeper we discover that for the past three years the company has paid out an additional $0.50 per quarter in special dividends. Add these into the equation and we're looking at a yield of more than 6% as we see on the following slide.

Source: HollyFrontier Corp Investor Presentation 

That's a much more compelling income proposition, as long as that income stream can at least continue at its current level. So, let's drill down a bit deeper to see if there is any danger lurking by doing a stock dividend payout ratio analysis for HollyFrontier.

Is HollyFrontier earning its dividend?
A high-yielding stock is great, as long as the company can maintain that high payout. So, let's take a closer look at HollyFrontier's earnings over the past few years and make sure the company is at least earning enough money to justify its dividends.

 Earnings Per ShareDividends DeclaredDividend Payout Ratio
3q14  $0.88  $0.82 93%
2q14  $0.89  $0.82 92%
1q14  $0.76  $0.80 105%
4q13  $0.32  $0.80 250%
3q13  $0.41  $0.80 195%
2q13  $1.27  $0.80 63%
1q13  $1.63  $0.80 49%
4q12  $1.92  $0.70 36%
3q12  $2.95  $1.15 39%
2q12  $2.39  $0.65 27%
1q12  $1.16  $0.60 52%

Source: HollyFrontier Corp press releases 

Clearly the dividend payout ratio over the past year or so is a lot higher than we'd like to see. Through the first three quarters of 2014 the company has paid out 97% of its earnings in dividends. Many would consider there to be danger lurking and that HollyFrontier's special dividends are at risk of being cut. However, due to the heavy depreciation charges that a refining company like HollyFrontier's takes, there is a big difference between reported income per share and actual cash flow.

A closer look at cash 
HollyFrontier's business actually produces a lot more cash flow than it's earnings suggest. Some of that money is reinvestment back into the business to maintain its assets. However, as we see on the next chart when we net this all out the payout ratio improves a bit more. 

 Net cash provided by operationsMaintenance capexFree Cash FlowDividends paid Payout Ratio
2014 YTD  $806,000  $262,900  $543,100  $489,000 90%
2013  $869,200  $303,500  $565,700  $645,900 114%
2012  $1,662,700  $242,900  $1,419,800  $658,100 46%

(NOTE: In millions of dollars. Maintenance capex is capex spending to cover depreciation and amortization) Source: HollyFrontier Corp press releases and SEC filings. 

The good news is that HollyFrontier's cash flow is more than enough to cover the company's total dividend payments so far this year. While 2013 was a bit weak, the company had a very nice surplus in cash from 2012 that it used to cover dividend payments. In fact, HollyFrontier still has a very substantial net cash balance as we see in this next chart.

(Note: 2014 is YTD). Chart prepared by the author. 

Thanks to its strong showing in 2012 the company still has plenty of cash to spare as its net cash position is about $500 million. That provides the company with a nice cushion to maintain its dividend even when its operations are a bit lumpy. 

Investor takeaway
HollyFrontier's dividend is stronger than it would first appear. This is why its important to dig a little deeper to make sure we're looking at the full story. In this case free cash flow and cash on the balance sheet told a slightly less dangerous story than the dividend payout ratio. So, in the case of HollyFrontier, while danger appeared to be lurking at first glance, a closer look at the company's cash story tells us that the dividend appears to be safe, at least for a while.