Yahoo Finance Should You Buy PennyMac Financial Services, Inc. (NYSE:PFSI) For Its Upcoming Dividend?
It looks like PennyMac Financial Services, Inc. (NYSE:PFSI) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase PennyMac Financial Services' shares before the 10th of November in order to be eligible for the dividend, which will be paid on the 23rd of November.
The company's next dividend payment will be US$0.20 per share. Last year, in total, the company distributed US$0.80 to shareholders. Calculating the last year's worth of payments shows that PennyMac Financial Services has a trailing yield of 1.6% on the current share price of $51.5. If you buy this business for its dividend, you should have an idea of whether PennyMac Financial Services's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for PennyMac Financial Services
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. PennyMac Financial Services has a low and conservative payout ratio of just 7.2% of its income after tax.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see PennyMac Financial Services has grown its earnings rapidly, up 32% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past three years, PennyMac Financial Services has increased its dividend at approximately 19% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
From a dividend perspective, should investors buy or avoid PennyMac Financial Services? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, PennyMac Financial Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for PennyMac Financial Services (of which 1 is concerning!) you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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