Is Enterprise Financial Services Corp (NASDAQ:EFSC) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
A 1.6% yield is nothing to get excited about, but investors probably think the long payment history suggests Enterprise Financial Services has some staying power. The company also bought back stock during the year, equivalent to approximately 2.1% of the company’s market capitalisation at the time. Some simple research can reduce the risk of buying Enterprise Financial Services for its dividend – read on to learn more.
Explore this interactive chart for our latest analysis on Enterprise Financial Services!
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Enterprise Financial Services paid out 17% of its profit as dividends, over the trailing twelve month period. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.
Consider getting our latest analysis on Enterprise Financial Services’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. For the purpose of this article, we only scrutinise the last decade of Enterprise Financial Services’s dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was US$0.21 in 2010, compared to US$0.72 last year. Dividends per share have grown at approximately 13% per year over this time.
It’s rare to find a company that has grown its dividends rapidly over ten years and not had any notable cuts, but Enterprise Financial Services has done it, which we really like.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend’s purchasing power over the long term. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it’s great to see Enterprise Financial Services has grown its earnings per share at 21% per annum 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. Firstly, we like that Enterprise Financial Services has a low and conservative payout ratio. That said, we were glad to see it growing earnings and paying a fairly consistent dividend. Enterprise Financial Services fits all of our criteria, and we think it’s an attractive dividend idea that would warrant further investigation.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 5 Enterprise Financial Services analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
If you spot an error that warrants correction, please contact the editor at 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. Simply Wall St has no position in the stocks mentioned.
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