Discover Financial Services's Dividend Analysis
Assessing the Sustainability of DFS's Upcoming Dividend
Discover Financial Services (NYSE:DFS) recently announced a dividend of $0.7 per share, payable on 2024-03-07, with the ex-dividend date set for 2024-02-21. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into Discover Financial Services's dividend performance and assess its sustainability.
What Does Discover Financial Services Do?
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Discover Financial Services is a bank operating in two distinct segments: direct banking and payment services. The company issues credit and debit cards and provides other consumer banking products including deposit accounts, student loans, and other personal loans. It also operates the Discover, Pulse, and Diners Club networks. The Discover network is the fourth-largest payment network in the United States as ranked by overall purchase volume, and Pulse is one of the largest ATM networks in the country.
A Glimpse at Discover Financial Services's Dividend History
Discover Financial Services has maintained a consistent dividend payment record since 2007. Dividends are currently distributed on a quarterly basis. Discover Financial Services has increased its dividend each year since 2010. The stock is thus listed as a dividend achiever, an honor that is given to companies that have increased their dividend each year for at least the past 14 years. Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Discover Financial Services's Dividend Yield and Growth
As of today, Discover Financial Services currently has a 12-month trailing dividend yield of 2.44% and a 12-month forward dividend yield of 2.53%. This suggests an expectation of increased dividend payments over the next 12 months. Over the past three years, Discover Financial Services's annual dividend growth rate was 11.00%. Extended to a five-year horizon, this rate decreased to 10.80% per year. And over the past decade, Discover Financial Services's annual dividends per share growth rate stands at an impressive 16.10%.
Based on Discover Financial Services's dividend yield and five-year growth rate, the 5-year yield on cost of Discover Financial Services stock as of today is approximately 4.07%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-12-31, Discover Financial Services's dividend payout ratio is 0.24.
Discover Financial Services's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Discover Financial Services's profitability 7 out of 10 as of 2023-12-31, suggesting good profitability prospects. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Discover Financial Services's growth rank of 7 out of 10 suggests that the company's growth trajectory is good relative to its competitors.
Revenue is the lifeblood of any company, and Discover Financial Services's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Discover Financial Services's revenue has increased by approximately 10.20% per year on average, a rate that outperforms approximately 63.19% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Discover Financial Services's earnings increased by approximately 19.50% per year on average, a rate that outperforms approximately 66.58% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 21.80%, which outperforms approximately 76.29% of global competitors.
Next Steps
With a track record of consistent dividend growth, a sustainable payout ratio, and robust profitability and growth metrics, Discover Financial Services appears poised to maintain its commitment to rewarding shareholders. The company's strategic position in the financial services industry, combined with its financial health, suggests a favorable outlook for dividend investors. As the payment date approaches, investors may want to consider DFS's dividend performance as part of a diversified investment strategy. For those seeking additional investment opportunities, GuruFocus Premium users can screen for high-dividend yield stocks using the High Dividend Yield Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
