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The board of Central Pacific Financial Corp. (NYSE:CPF) has announced that it will pay a dividend of US$0.24 per share on the 15th of September. This means the annual payment is 3.7% of the current stock price, which is above the average for the industry.
Central Pacific Financial's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Central Pacific Financial's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 10.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.
Central Pacific Financial Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2013, the first annual payment was US$0.32, compared to the most recent full-year payment of US$0.96. This means that it has been growing its distributions at 15% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Has Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Central Pacific Financial has seen EPS rising for the last five years, at 5.9% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Our Thoughts On Central Pacific Financial's Dividend
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Central Pacific Financial you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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.
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