Provident Financial Services, Inc. (NYSE:PFS) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
It looks like Provident Financial Services, Inc. (NYSE:PFS) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase Provident Financial Services' shares before the 13th of November to receive the dividend, which will be paid on the 27th of November.
The company's next dividend payment will be US$0.24 per share, on the back of last year when the company paid a total of US$0.96 to shareholders. Calculating the last year's worth of payments shows that Provident Financial Services has a trailing yield of 4.2% on the current share price of US$22.96. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Provident Financial Services can afford its dividend, and if the dividend could grow.
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. Provident Financial Services paid out just 10% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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.
See our latest analysis for Provident Financial Services
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Provident Financial Services's earnings per share have been growing at 11% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Provident Financial Services has delivered an average of 2.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Final Takeaway
Is Provident Financial Services worth buying for its dividend? Companies like Provident Financial Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Overall, Provident Financial Services looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
So while Provident Financial Services looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Provident Financial Services and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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