South Plains Financial's (NASDAQ:SPFI) Dividend Will Be Increased To $0.12

The board of South Plains Financial, Inc. (NASDAQ:SPFI) has announced that it will be paying its dividend of $0.12 on the 15th of August, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

View our latest analysis for South Plains Financial

South Plains Financial's Earnings Will Easily Cover The Distributions

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 12% is a great sign for current shareholders, as this means that earnings greatly cover dividends.

Over the next year, EPS is forecast to fall by 14.9%. But if the dividend continues along the path it has been on recently, we estimate the future payout ratio could be 7.4%, which would be 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 dividend has gone from an annual total of $0.12 in 2019 to the most recent total annual payment of $0.44. This implies that the company grew its distributions at a yearly rate of about 54% 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

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that South Plains Financial has been growing its earnings per share at 17% 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

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for South Plains Financial (1 is significant!) that you should be aware of before investing. Is South Plains Financial 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.