South Plains Financial (NASDAQ:SPFI) Is Increasing Its Dividend To $0.13

South Plains Financial, Inc.'s (NASDAQ:SPFI) dividend will be increasing from last year's payment of the same period to $0.13 on 15th of May. Although the dividend is now higher, the yield is only 2.5%, which is below the industry average.

Check out our latest analysis for South Plains Financial

South Plains Financial's Payment Expected To Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

South Plains Financial is just starting to establish itself as being able to pay dividends to shareholders, given its short 3-year history of distributing earnings. While it has a shorter history of paying out dividends, South Plains Financial's payout ratio of 14% is a great sign for current shareholders, as this means that earnings greatly cover dividends.

Over the next 3 years, EPS is forecast to fall by 46.1%. Fortunately, analysts forecast the future payout ratio to be 24% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

South Plains Financial Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2020, the dividend has gone from $0.12 total annually to $0.52. This implies that the company grew its distributions at a yearly rate of about 63% over that duration. 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. We are encouraged to see that South Plains Financial has grown earnings per share at 16% per 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.

South Plains Financial Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that South Plains Financial is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, South Plains Financial has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.