Bread Financial Holdings (NYSE:BFH) Will Pay A Dividend Of $0.21

Bread Financial Holdings, Inc. (NYSE:BFH) will pay a dividend of $0.21 on the 16th of September. This means the annual payment is 2.1% of the current stock price, which is above the average for the industry.

Check out 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. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 35.6%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 188%, which is definitely a bit high to be sustainable going forward.

Bread Financial Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 6 years was $2.08 in 2016, and the most recent fiscal year payment was $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 impressed us by growing EPS at 14% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Bread Financial Holdings' prospects of growing its dividend payments in the future.

We Really Like Bread Financial Holdings' Dividend

Overall, we like to see the dividend staying consistent, and we think Bread Financial Holdings might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 2 warning signs for Bread Financial Holdings (of which 1 doesn't sit too well with us!) 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.