The board of Premier Financial Corp. (NASDAQ:PFC) has announced that it will be increasing its dividend on the 27th of August to US$0.27. This takes the annual payment to 3.7% of the current stock price, which is about average for the industry.
Premier Financial's Dividend Is Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Premier Financial is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to fall by 7.3%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 36%, which is comfortable for the company to continue in the future.
Premier Financial Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the dividend has gone from US$0.10 to US$1.08. This means that it has been growing its distributions at 27% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Premier Financial has been growing its earnings per share at 18% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Overall, we always like to see the dividend being raised, but we don't think Premier Financial will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Premier Financial is a great stock to add to your portfolio if income is your focus.
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. As an example, we've identified 1 warning sign for Premier Financial that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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