The advice of Discover financial services (NYSE: DFS) announced that it will increase its dividend on December 9 to $ 0.50. Based on the announced payment, the dividend yield for the company will be 1.5%, which is fairly typical for the industry.
See our latest review for Discover Financial Services
Discover Financial Services Income Easily Cover Distributions
We’re not overly impressed with dividend yields unless they can be sustained over time. However, prior to this announcement, Discover Financial Services‘ dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is used to help it grow.
Over the next year, EPS is expected to drop 17.1%. If the dividend continues according to recent trends, we estimate the payout ratio could be 15%, which we consider comfortable enough with most of the company’s earnings remaining to grow the business in the future.
Find out that financial services have a strong track record
The company has a long history of paying stable dividends. The first annual payment in the past 10 years was US $ 0.08 in 2011, and the most recent year’s payment was US $ 2.00. This implies that the company has increased its distributions at an annual rate of approximately 38% over this period. Rapidly growing dividends over a long period of time are a very valuable feature for an income stock.
The dividend seems likely to increase
Investors in the company will be happy to receive dividends for some time. We are encouraged to see that Discover Financial Services has increased its earnings per share by 26% per year over the past five years. Rapid earnings growth and a low payout ratio suggest that this company has indeed reinvested in its business. If this continues, this business could have a bright future.
We really love learning about the financial services dividend
Overall, we think it could be an attractive income stock, and it’s only getting better by paying a higher dividend this year. Profits easily cover the company’s distributions and the business generates a lot of cash. However, it should be noted that profits are expected to decline over the next year or so, which may not change the long-term outlook, but may affect the dividend payout over the next 12 months. Overall, this ticks a lot of the boxes that we look for when choosing an income stock.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. Meanwhile, despite the importance of dividend payments, they aren’t the only factors our readers should be aware of when valuing a business. For example, we have identified 3 warning signs for Discover Financial Services (1 is a concern!) That you should know before investing. We have also set up a list of global stocks with a solid dividend.
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 documents. Simply Wall St has no position in any of the stocks mentioned.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.