BayFirst Financial Corp.'s (NASDAQ:BAFN) investors are due to receive a payment of $0.08 per share on 15th of December. The dividend yield is 2.5% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for BayFirst Financial

BayFirst Financial's Payment Expected To Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.

BayFirst Financial has a short history of paying out dividends, with its current track record at only 4 years. Taking data from BayFirst Financial's last earnings report, the payout ratio is at a decent 27%, meaning that the company is able to pay out its dividend with some room to spare.

Unless the company can turn things around, EPS could fall by 10.2% over the next year. Assuming the dividend continues along recent trends, we believe the future payout ratio could be 53%, which we are pretty comfortable with and we think is feasible on an earnings basis.

BayFirst Financial Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The annual payment during the last 4 years was $0.179 in 2020, and the most recent fiscal year payment was $0.32. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. BayFirst Financial has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. BayFirst Financial's earnings per share has shrunk at 10% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On BayFirst Financial's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about BayFirst Financial's payments, as there could be some issues with sustaining them into the future. While BayFirst Financial is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.