Bread Financial Holdings, Inc. (NYSE:BFH) will pay a dividend of $0.21 on the 16th of September. This makes the dividend yield 2.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Bread Financial Holdings

Bread Financial Holdings Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Bread Financial Holdings was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 35.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 188%, which could put the dividend in jeopardy if the company's earnings don't improve.

Bread Financial Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2016, the annual payment back then was $2.08, compared to the most recent full-year payment of $0.84. Dividend payments have fallen sharply, down 60% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Bread Financial Holdings has impressed us by growing EPS at 14% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Bread Financial Holdings' prospects of growing its dividend payments in the future.

We Really Like Bread Financial Holdings' Dividend

Overall, we like to see the dividend staying consistent, and we think Bread Financial Holdings might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Bread Financial Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.