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It looks like Bread Financial Holdings, Inc. (NYSE:BFH) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Bread Financial Holdings' shares before the 11th of August in order to be eligible for the dividend, which will be paid on the 16th of September.
The company's upcoming dividend is US$0.21 a share, following on from the last 12 months, when the company distributed a total of US$0.84 per share to shareholders. Last year's total dividend payments show that Bread Financial Holdings has a trailing yield of 2.2% on the current share price of $38.37. If you buy this business for its dividend, you should have an idea of whether Bread Financial Holdings's dividend is reliable and sustainable. So we need to investigate whether Bread Financial Holdings can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bread Financial Holdings paid out just 4.4% 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Bread Financial Holdings, with earnings per share up 5.5% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bread Financial Holdings's dividend payments per share have declined at 14% per year on average over the past six years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Is Bread Financial Holdings worth buying for its dividend? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, Bread Financial Holdings appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
While it's tempting to invest in Bread Financial Holdings for the dividends alone, you should always be mindful of the risks involved. Be aware that Bread Financial Holdings is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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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