Premier Financial Corp. (NASDAQ:PFC) will pay a dividend of $0.31 on the 10th of May. Based on this payment, the dividend yield on the company's stock will be 6.3%, which is an attractive boost to shareholder returns.

View our latest analysis for Premier Financial

Premier Financial's Earnings Will Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Having distributed dividends for at least 10 years, Premier Financial has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Premier Financial's payout ratio of 40% is a good sign as this means that earnings decently cover dividends.

Over the next year, EPS is forecast to fall by 15.8%. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 55%, which we are pretty comfortable with and we think would be feasible on an earnings basis.

Premier Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from $0.20 total annually to $1.24. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Premier Financial's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Premier Financial has been growing its earnings per share at 6.4% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Premier Financial's Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Premier Financial that investors need to be conscious of moving forward. Is Premier Financial not quite the opportunity you were looking for? Why not check out our selection of top 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.