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

PennyMac Financial Services, Inc.'s (NYSE:PFSI) investors are due to receive a payment of $0.20 per share on 25th of August. This means the dividend yield will be fairly typical at 1.1%.

View our latest analysis for PennyMac Financial Services

PennyMac Financial Services' Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, PennyMac Financial Services was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 102.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.5% by next year, which is in a pretty sustainable range.

PennyMac Financial Services 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. The dividend has gone from an annual total of $0.48 in 2019 to the most recent total annual payment of $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. PennyMac Financial Services has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Although it's important to note that PennyMac Financial Services' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, PennyMac Financial Services could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about PennyMac Financial Services' payments, as there could be some issues with sustaining them into the future. While PennyMac Financial Services is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for PennyMac Financial Services (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.