Here's What We Like About South Plains Financial's (NASDAQ:SPFI) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that South Plains Financial, Inc. (NASDAQ:SPFI) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. This means that investors who purchase South Plains Financial's shares on or after the 3rd of February will not receive the dividend, which will be paid on the 18th of February.

The company's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Last year's total dividend payments show that South Plains Financial has a trailing yield of 1.6% on the current share price of US$36.44. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for South Plains Financial

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. South Plains Financial has a low and conservative payout ratio of just 19% of its income after tax.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, South Plains Financial's earnings per share have been growing at 12% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last five years, South Plains Financial has lifted its dividend by approximately 38% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Has South Plains Financial got what it takes to maintain its dividend payments? Companies like South Plains Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating South Plains Financial more closely.

While it's tempting to invest in South Plains Financial for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for South Plains Financial and you should be aware of this before buying any shares.

If you're in the market for strong dividend payers, we recommend checking 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.