Bread Financial Holdings' (NYSE:BFH) Dividend Will Be US$0.21

The board of Bread Financial Holdings, Inc. (NYSE:BFH) has announced that it will pay a dividend on the 17th of June, with investors receiving US$0.21 per share. This makes the dividend yield 35%, which will augment investor returns quite nicely.

See our latest analysis for Bread Financial Holdings

Bread Financial Holdings Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Bread Financial Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 32.9%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 171%, which could put the dividend under pressure if earnings don't start to improve.

Bread Financial Holdings' Dividend Has Lacked Consistency

It's comforting to see that Bread Financial Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from US$2.08 in 2016 to the most recent annual payment of US$0.84. Dividend payments have fallen sharply, down 60% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Bread Financial Holdings has seen EPS rising for the last five years, at 17% per annum. Bread Financial Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Bread Financial Holdings 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 company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Bread Financial Holdings has 4 warning signs (and 2 which are significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.