PennyMac Financial Services, Inc. (NYSE:PFSI) Looks Interesting, And It's About To Pay A Dividend

·3 min read

PennyMac Financial Services, Inc. (NYSE:PFSI) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase PennyMac Financial Services' shares before the 14th of February in order to be eligible for the dividend, which will be paid on the 25th of February.

The company's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Calculating the last year's worth of payments shows that PennyMac Financial Services has a trailing yield of 1.3% on the current share price of $60.89. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for PennyMac Financial Services

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. PennyMac Financial Services has a low and conservative payout ratio of just 5.1% of its income after tax.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see PennyMac Financial Services has grown its earnings rapidly, up 43% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. PennyMac Financial Services has delivered an average of 29% per year annual increase in its dividend, based on the past two years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Has PennyMac Financial Services got what it takes to maintain its dividend payments? Companies like PennyMac Financial Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, PennyMac Financial Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

In light of that, while PennyMac Financial Services has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for PennyMac Financial Services that we recommend you consider before investing in the business.

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.

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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.