South Plains Financial (NASDAQ:SPFI) Will Pay A Larger Dividend Than Last Year At US$0.09

The board of South Plains Financial, Inc. (NASDAQ:SPFI) has announced that it will be increasing its dividend on the 16th of August to US$0.09. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.

See our latest analysis for South Plains Financial

South Plains Financial's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. But before making this announcement, South Plains Financial's earnings quite easily covered the dividend. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

EPS is set to fall by 14.8% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 3.6%, which is comfortable for the company to continue in the future.

South Plains Financial Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The first annual payment during the last 2 years was US$0.12 in 2019, and the most recent fiscal year payment was US$0.36. This means that it has been growing its distributions at 73% 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 South Plains Financial has been growing its earnings per share at 13% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On South Plains Financial's Dividend

In summary, while it's always good to see the dividend being raised, we don't think South Plains Financial's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, South Plains Financial has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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