Provident Financial Services, Inc. (NYSE:PFS) has announced that it will pay a dividend of $0.24 per share on the 29th of November. Based on this payment, the dividend yield on the company’s stock will be 5.1%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Provident Financial Services
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable.
Provident Financial Services has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. While having a long history of dividends is a good sign, Provident Financial Services’ latest earning reports show that its payout ratio – the ratio of the dividend amount to earnings – currently sits at 98%. This figure could be worrying with regards to the sustainability of the company’s dividends, as earnings just barely cover its dividend payments.
Over the next 3 years, EPS is forecast to expand by 180.0%. For the same time horizon, analysts estimate that the future payout ratio could be 44% which would be quite comfortable going to take the dividend forward.
The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from $0.60 total annually to $0.96. This implies that the company grew its distributions at a yearly rate of about 4.8% over that duration. Although we can’t deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren’t as good as they seem. Provident Financial Services’ EPS has fallen by approximately 17% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It’s not all bad news though, as the earnings are predicted to rise over the next 12 months – we would just be a bit cautious until this becomes a long term trend.
An additional note is that the company has been raising capital by issuing stock equal to 74% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Read More: Provident Financial Services (NYSE:PFS) Will Pay A Dividend Of $0.24
