Readers hoping to buy Peoples Financial Services Corp. (NASDAQ:PFIS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Thus, you can purchase Peoples Financial Services’ shares before the 30th of August in order to receive the dividend, which the company will pay on the 15th of September.
The company’s next dividend payment will be US$0.41 per share. Last year, in total, the company distributed US$1.64 to shareholders. Looking at the last 12 months of distributions, Peoples Financial Services has a trailing yield of approximately 3.7% on its current stock price of $44.69. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Peoples Financial Services
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Peoples Financial Services paid out a comfortable 32% of its profit last year.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we’re glad to see Peoples Financial Services’s earnings per share have risen 15% per annum over the last five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Peoples Financial Services has delivered an average of 3.2% per year annual increase in its dividend, based on the past nine years of dividend payments. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Is Peoples Financial Services an attractive dividend stock, or better left on the shelf? 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 strategy can add significant value to shareholders over the long term – as long as it’s done without issuing too many new shares. Peoples Financial Services ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
So while Peoples Financial Services looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. We’ve identified 2 warning signs with Peoples Financial Services (at least 1 which shouldn’t be ignored), and understanding these should be part of your investment process.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
What are the risks and opportunities for Peoples Financial Services?
Trading at 55.9% below our estimate of its fair value
Earnings are forecast to decline by an average of 27.8% per year for the next 3 years
View all Risks and Rewards
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.