Punjab & Sind Bank (NSE:PSB) Is Reducing Its Dividend To ₹0.20

Punjab & Sind Bank's (NSE:PSB) dividend is being reduced from last year's payment covering the same period to ₹0.20 on the 23rd of August. This means that the dividend yield is 0.3%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Punjab & Sind Bank

Punjab & Sind Bank's Payment Expected To Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

Punjab & Sind Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Using data from its latest earnings report, Punjab & Sind Bank's payout ratio sits at 23%, an extremely comfortable number that shows that it can pay its dividend.

If the trend of the last few years continues, EPS will grow by 44.8% over the next 12 months. If the dividend continues on this path, the future payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ₹3.20, compared to the most recent full-year payment of ₹0.20. The dividend has fallen 94% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Punjab & Sind Bank has grown earnings per share at 45% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Punjab & Sind Bank's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Punjab & Sind Bank has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend 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. Taking the debate a bit further, we've identified 2 warning signs for Punjab & Sind Bank that investors need to be conscious of moving forward. Is Punjab & Sind Bank 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.

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