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PennyMac Financial Services, Inc.'s (NYSE:PFSI) investors are due to receive a payment of US$0.20 per share on 27th of May. This means the annual payment will be 1.7% of the current stock price, which is lower than the industry average.
Check out our latest analysis for PennyMac Financial Services
PennyMac Financial Services' Earnings 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. However, prior to this announcement, PennyMac Financial Services' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 29.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 7.7%, which is comfortable for the company to continue in the future.
PennyMac Financial Services Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from US$0.48 in 2019 to the most recent annual payment of US$0.80. This means that it has been growing its distributions at 19% per annum 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
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that PennyMac Financial Services has grown earnings per share at 36% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like PennyMac Financial Services' Dividend
Overall, we like to see the dividend staying consistent, and we think PennyMac Financial Services might even raise payments in the future. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, PennyMac Financial Services has 4 warning signs (and 1 which can't be ignored) we think you should know about. Is PennyMac Financial Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.