Corporate financial services company (NASDAQ: EFSC) has announced that it will increase its dividend on December 31 to US $ 0.20. Despite this increase, the 1.6% dividend yield is only a modest boost to shareholder returns.
See our latest analysis for corporate financial services
Payment for corporate financial services has strong revenue coverage
If predictable over a long period of time, even low dividend yields can be attractive. Before making this announcement, Enterprise Financial Services was easily earning enough to cover the dividend. As a result, much of what she earned was reinvested in the business.
Going forward, earnings per share are expected to increase by 18.6% over the next year. Assuming the dividend continues on recent trends, we think the payout ratio could reach 25% by next year, which is in a fairly sustainable range.
Corporate financial services have a strong track record
The company has been paying a dividend for a long time, and it’s fairly stable, which gives us confidence in the future dividend potential. Since 2011, the dividend has increased from US $ 0.21 to US $ 0.80. This means that he increased his distributions by 14% per year during this period. It’s good to see that there has been strong dividend growth and that there have been no cuts for a long time.
Prospects for dividend growth are limited
Some investors will be eager to buy a portion of the company’s stock based on its dividend history. However, Enterprise Financial Services has only grown its earnings per share by 4.8% per year over the past five years. Earnings growth is slow, but on the bright side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
We would also like to point out that Enterprise Financial Services has issued shares equivalent to 46% of the outstanding shares. Doing this regularly can be detrimental – it is difficult to increase dividends per share when new shares are regularly created.
We really love the corporate financial services dividend
Overall, a dividend increase is always good, and we think Enterprise Financial Services is a solid income stock thanks to its track record and earnings growth. The company easily earns enough to cover its dividend payments and it’s great to see that those profits translate into cash flow. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.
Investors generally tend to favor companies with a consistent and stable dividend policy over those that operate irregularly. However, there are other things for investors to consider when analyzing the performance of stocks. For example, we have chosen 1 warning sign for corporate financial services that investors should be aware of before committing capital to this stock. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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