South Plains Financial, Inc. (NASDAQ:SPFI) has announced that it will be increasing its dividend from last year’s comparable payment on the 15th of August to $0.12. This takes the annual payment to 1.7% of the current stock price, which unfortunately is below what the industry is paying.
South Plains Financial’s Earnings Will Easily Cover The Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.
South Plains Financial has a short history of paying out dividends, with its current track record at only 3 years. Based on its last earnings report however, the payout ratio is at a comfortable 12%, meaning that South Plains Financial may be able to sustain this dividend for future years if it continues on this earnings trend.
Looking forward, earnings per share is forecast to fall by 14.9% over the next year. But if the dividend continues along recent trends, we estimate the future payout ratio could be 7.4%, which we would consider to be quite comfortable looking forward, with most of the company’s earnings left over to grow the business in the future.
South Plains Financial Doesn’t Have A Long Payment History
The dividend hasn’t seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn’t that long in the grand scheme of things. Since 2019, the dividend has gone from $0.12 total annually to $0.44. This works out to be a compound annual growth rate (CAGR) of approximately 54% a year over that time. We’re not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. South Plains Financial has seen EPS rising for the last five years, at 17% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for South Plains Financial’s prospects of growing its dividend payments in the future.
South Plains Financial Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that South Plains Financial is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won’t be a problem if this doesn’t become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we’ve come across 2 warning signs for South Plains Financial you should be aware of, and 1 of them is potentially serious. Is South Plains Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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