Central Pacific Financial (NYSE:CPF) Is Increasing Its Dividend To US$0.26

The board of Central Pacific Financial Corp. (NYSE:CPF) has announced that it will be increasing its dividend on the 15th of March to US$0.26. This makes the dividend yield 3.4%, which is above the industry average.

See our latest analysis for Central Pacific Financial

Central Pacific Financial's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Central Pacific Financial's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 20.3%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 49%, which is comfortable for the company to continue in the future.

Central Pacific Financial Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The first annual payment during the last 9 years was US$0.32 in 2013, and the most recent fiscal year payment was US$1.04. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. Central Pacific Financial has seen EPS rising for the last five years, at 14% per annum. 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.

Central Pacific 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 company is generating plenty of cash, and the earnings also quite easily cover the distributions. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Central Pacific Financial (of which 1 doesn't sit too well with us!) you should know about. We have also put together a list of global stocks with a solid dividend.

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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.