Why It Might Not Make Sense To Buy Provident Financial Holdings, Inc. (NASDAQ:PROV) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Provident Financial Holdings, Inc. (NASDAQ:PROV) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 18th of November will not receive the dividend, which will be paid on the 10th of December.

Provident Financial Holdings's next dividend payment will be US$0.14 per share. Last year, in total, the company distributed US$0.56 to shareholders. Last year's total dividend payments show that Provident Financial Holdings has a trailing yield of 4.1% on the current share price of $13.56. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Provident Financial Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Provident Financial Holdings

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. Provident Financial Holdings paid out 63% of its earnings to investors last year, a normal payout level for most businesses.

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.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Provident Financial Holdings's earnings are down 4.0% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Provident Financial Holdings has increased its dividend at approximately 30% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is Provident Financial Holdings worth buying for its dividend? We're not overly enthused to see Provident Financial Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Provident Financial Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Ever wonder what the future holds for Provident Financial Holdings? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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