Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Provident Financial Services, Inc. (NYSE:PFS) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 28th of August.
Provident Financial Services's next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.92 to shareholders. Looking at the last 12 months of distributions, Provident Financial Services has a trailing yield of approximately 6.4% on its current stock price of $14.38. If you buy this business for its dividend, you should have an idea of whether Provident Financial Services's dividend is reliable and sustainable. So we need to investigate whether Provident Financial Services can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Provident Financial Services paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Provident Financial Services's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Provident Financial Services has delivered 7.7% dividend growth per year on average over the past 10 years.
The Bottom Line
Is Provident Financial Services worth buying for its dividend? Provident Financial Services has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. We're unconvinced on the company's merits, and think there might be better opportunities out there.
Ever wonder what the future holds for Provident Financial Services? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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