ServisFirst Bancshares, Inc.'s (NASDAQ:SFBS) 2.0% Dividend Yield Looks Pretty Interesting

Is ServisFirst Bancshares, Inc. ( NASDAQ:SFBS ) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

Investors might not know much about ServisFirst Bancshares's dividend prospects, even though it has been paying dividends for the last six years and offers a 2.0% yield. While the yield may not look too great, the relatively long payment history is interesting. There are a few simple ways to reduce the risks of buying ServisFirst Bancshares for its dividend, and we'll go through these below.

Click the interactive chart for our full dividend analysis

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. ServisFirst Bancshares paid out 23% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.

Consider getting our latest analysis on ServisFirst Bancshares's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. ServisFirst Bancshares has been paying a dividend for the past six years so it's good to see that the company has a history of paying dividends. During the past six-year period, the first annual payment was US$0.18 in 2014, compared to US$0.70 last year. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. ServisFirst Bancshares's dividend payments have fluctuated, so it hasn't grown 25% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

So, its dividends have grown at a rapid rate over this time, which is quite promising.

Dividend Growth Potential

Whenever we investigate dividends, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's good to see ServisFirst Bancshares has been growing its earnings per share at 21% a year over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're glad to see ServisFirst Bancshares has a low payout ratio, as this suggests earnings are being reinvested in the business. Additionally earnings growth has been good and has supported the dividend growth. Overall we think ServisFirst Bancshares is an interesting dividend stock and worth looking into further.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come accross 3 warning signs for ServisFirst Bancshares you should be aware of, and 1 of them can't be ignored.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com .

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. Thank you for reading.