Peoples Financial Services Corp. (NASDAQ:PFIS) Looks Interesting, And It's About To Pay A Dividend

By
Simply Wall St
Published
February 20, 2022
NasdaqGS:PFIS
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Peoples Financial Services Corp. (NASDAQ:PFIS) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Peoples Financial Services' shares before the 25th of February to receive the dividend, which will be paid on the 15th of March.

The company's next dividend payment will be US$0.39 per share. Last year, in total, the company distributed US$1.56 to shareholders. Last year's total dividend payments show that Peoples Financial Services has a trailing yield of 3.2% on the current share price of $48.86. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Peoples Financial Services

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Peoples Financial Services is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Peoples Financial Services paid out over the last 12 months.

historic-dividend
NasdaqGS:PFIS Historic Dividend February 20th 2022

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Peoples Financial Services's earnings per share have risen 18% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Peoples Financial Services has delivered an average of 2.9% per year annual increase in its dividend, based on the past eight years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Peoples Financial Services is keeping back more of its profits to grow the business.

Final Takeaway

Has Peoples Financial Services got what it takes to maintain its dividend payments? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Peoples Financial Services ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

In light of that, while Peoples Financial Services has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Peoples Financial Services and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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