Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 1st of August will not receive this dividend, which will be paid on the 30th of August.
Pinnacle Financial Partners's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Looking at the last 12 months of distributions, Pinnacle Financial Partners has a trailing yield of approximately 1.0% on its current stock price of $61.14. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Pinnacle Financial Partners paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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.
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 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 it's comforting to see Pinnacle Financial Partners's earnings have been skyrocketing, up 24% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 6 years, Pinnacle Financial Partners has increased its dividend at approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is Pinnacle Financial Partners worth buying for its dividend? 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. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Pinnacle Financial Partners more closely.
Ever wonder what the future holds for Pinnacle Financial Partners? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.