Is It Worth Considering Bread Financial Holdings, Inc. (NYSE:BFH) For Its Upcoming Dividend?

Bread Financial Holdings, Inc. (NYSE:BFH) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Bread Financial Holdings' shares before the 9th of May in order to be eligible for the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be US$0.21 per share, and in the last 12 months, the company paid a total of US$0.84 per share. Last year's total dividend payments show that Bread Financial Holdings has a trailing yield of 2.1% on the current share price of US$40.81. If you buy this business for its dividend, you should have an idea of whether Bread Financial Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Bread Financial Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bread Financial Holdings has a low and conservative payout ratio of just 10% of its income after tax.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Bread Financial Holdings's earnings per share have dropped 13% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bread Financial Holdings's dividend payments per share have declined at 11% per year on average over the past eight years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Bread Financial Holdings worth buying for its dividend? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. We're unconvinced on the company's merits, and think there might be better opportunities out there.

With that being said, if dividends aren't your biggest concern with Bread Financial Holdings, you should know about the other risks facing this business. Be aware that Bread Financial Holdings is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.