Provident Bancorp's (NASDAQ:PVBC) Dividend Will Be US$0.04

Provident Bancorp, Inc. (NASDAQ:PVBC) has announced that it will pay a dividend of US$0.04 per share on the 27th of May. This means the annual payment will be 1.0% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Provident Bancorp

Provident Bancorp's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Provident Bancorp's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 20.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

Provident Bancorp Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2020, the dividend has gone from US$0.12 to US$0.16. This means that it has been growing its distributions at 15% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Provident Bancorp has been growing its earnings per share at 23% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We'd also point out that Provident Bancorp has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

We Really Like Provident Bancorp's Dividend

Overall, we like to see the dividend staying consistent, and we think Provident Bancorp might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Provident Bancorp that investors should know about before committing capital to this stock. Is Provident Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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