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Should You Buy South Plains Financial, Inc. (NASDAQ:SPFI) For Its Upcoming Dividend?

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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that South Plains Financial, Inc. (NASDAQ:SPFI) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 24th of July to receive the dividend, which will be paid on the 10th of August.

South Plains Financial's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Last year's total dividend payments show that South Plains Financial has a trailing yield of 0.9% on the current share price of $13.1. If you buy this business for its dividend, you should have an idea of whether South Plains Financial's dividend is reliable and sustainable. So we need to investigate whether South Plains Financial can afford its dividend, and if the dividend could grow.

View our latest analysis for South Plains Financial

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. South Plains Financial has a low and conservative payout ratio of just 5.0% 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.

historic-dividend
historic-dividend

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. That's why we're glad to see earnings per share up 2.2% over the past 12 months.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

South Plains Financial also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Given that South Plains Financial has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Is South Plains Financial worth buying for its dividend? South Plains Financial has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. South Plains Financial 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 South Plains Financial looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for South Plains Financial you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.