PennyMac Financial Services' (NYSE:PFSI) Dividend Will Be US$0.20

The board of PennyMac Financial Services, Inc. (NYSE:PFSI) has announced that it will pay a dividend on the 25th of February, with investors receiving US$0.20 per share. The dividend yield is 1.4% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for PennyMac Financial Services

PennyMac Financial Services' Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, PennyMac Financial Services' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 26.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 6.2%, which we are pretty comfortable with and we think is feasible on an earnings basis.

PennyMac Financial Services Is Still Building Its Track Record

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$0.48 in 2020, and the most recent fiscal year payment was US$0.80. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

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. PennyMac Financial Services has seen EPS rising for the last five years, at 43% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

PennyMac Financial Services Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. 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 instance, we've picked out 1 warning sign for PennyMac Financial Services that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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