Simmons First National (NASDAQ:SFNC) Has Announced A Dividend Of $0.2125

The board of Simmons First National Corporation (NASDAQ:SFNC) has announced that it will pay a dividend on the 2nd of January, with investors receiving $0.2125 per share. Based on this payment, the dividend yield on the company's stock will be 4.8%, which is an attractive boost to shareholder returns.

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Simmons First National's Payment Expected To Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Having distributed dividends for at least 10 years, Simmons First National has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Simmons First National's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Simmons First Nationalis pulling cash from elsewhere to keep its shareholders happy.

According to analysts, EPS should be several times higher in the next 3 years. In addtion, they also estimate the future payout ratio could reach 44% in the same time period, which we would be comfortable to see continuing.

Check out our latest analysis for Simmons First National

Simmons First National Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $0.44, compared to the most recent full-year payment of $0.85. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Earnings per share has been sinking by 28% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

An additional note is that the company has been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Simmons First National (of which 1 is concerning!) you should know about. Is Simmons First National 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.