Stock Analysis

PennyMac Financial Services (NYSE:PFSI) Is Due To Pay A Dividend Of $0.20

NYSE:PFSI
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PennyMac Financial Services, Inc.'s (NYSE:PFSI) investors are due to receive a payment of $0.20 per share on 22nd of November. This payment means that the dividend yield will be 1.1%, which is around the industry average.

View our latest analysis for PennyMac Financial Services

PennyMac Financial Services' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, PennyMac Financial Services was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 172.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 8.3% by next year, which is in a pretty sustainable range.

historic-dividend
NYSE:PFSI Historic Dividend October 30th 2023

PennyMac Financial Services 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. Since 2019, the annual payment back then was $0.48, compared to the most recent full-year payment of $0.80. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. 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.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Unfortunately, PennyMac Financial Services' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think PennyMac Financial Services is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for PennyMac Financial Services (of which 1 shouldn't be ignored!) you should know about. Is PennyMac Financial Services 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.