Should You Buy Peoples Financial Services Corp. (NASDAQ:PFIS) For Its Upcoming Dividend?
Peoples Financial Services Corp. (NASDAQ:PFIS) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Peoples Financial Services investors that purchase the stock on or after the 29th of November will not receive the dividend, which will be paid on the 15th of December.
The company's upcoming dividend is US$0.40 a share, following on from the last 12 months, when the company distributed a total of US$1.60 per share to shareholders. Last year's total dividend payments show that Peoples Financial Services has a trailing yield of 2.8% on the current share price of $57.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Peoples 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. Peoples Financial Services is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see how much of its profit Peoples Financial Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Peoples Financial Services's earnings per share have risen 19% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past nine years, Peoples Financial Services has increased its dividend at approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Peoples Financial Services is keeping back more of its profits to grow the business.
To Sum It Up
Has Peoples Financial Services got what it takes to maintain its dividend payments? Companies like Peoples Financial Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Peoples Financial Services more closely.
While it's tempting to invest in Peoples Financial Services for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Peoples Financial Services you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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