The board of Provident Financial Holdings, Inc. (NASDAQ:PROV) has announced that it will pay a dividend of $0.14 per share on the 6th of March. This payment means that the dividend yield will be 3.5%, which is around the industry average.

Check out our latest analysis for Provident Financial Holdings

Provident Financial Holdings' Earnings Will Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Having distributed dividends for at least 10 years, Provident Financial Holdings has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Provident Financial Holdings' payout ratio of 62% is a good sign as this means that earnings decently cover dividends.

The next year is set to see EPS grow by 20.9%. If the dividend continues along recent trends, we estimate the future payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.

Provident Financial Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.40 in 2015, and the most recent fiscal year payment was $0.56. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Provident Financial Holdings has only grown its earnings per share at 4.2% per annum over the past five years. The company has been growing at a pretty soft 4.2% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Provident Financial Holdings Looks Like A Great Dividend Stock

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 company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Provident Financial Holdings stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.