South Plains Financial's (NASDAQ:SPFI) Dividend Will Be Increased To US$0.11

The board of South Plains Financial, Inc. (NASDAQ:SPFI) has announced that it will be increasing its dividend on the 14th of February to US$0.11. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for South Plains Financial

South Plains Financial's Payment Has 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. Before making this announcement, South Plains Financial was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 27.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 5.4%, which we are pretty comfortable with and we think is feasible on an earnings basis.

South Plains Financial 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 first annual payment was US$0.12, compared to the most recent full-year payment of US$0.44. This means that it has been growing its distributions at 91% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see South Plains Financial has been growing its earnings per share at 16% a 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for South Plains Financial (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.