PennyMac Financial Services (NYSE:PFSI) Will Pay A Dividend Of $0.20

The board of PennyMac Financial Services, Inc. (NYSE:PFSI) has announced that it will pay a dividend on the 23rd of February, with investors receiving $0.20 per share. This payment means that the dividend yield will be 0.9%, which is around the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that PennyMac Financial Services' stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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. Prior to this announcement, PennyMac Financial Services' earnings easily covered the dividend, but free cash flows were negative. 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.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 9.5%, which makes us pretty comfortable with the sustainability of the dividend.

PennyMac Financial Services Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 4 years was $0.48 in 2020, and the most recent fiscal year payment was $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 14% 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.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. 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. While EPS growth is quite low, PennyMac Financial Services has the option to increase the payout ratio to return more cash to shareholders.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 4 warning signs for PennyMac Financial Services (of which 1 can't be ignored!) 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.