The board of Bread Financial Holdings, Inc. (NYSE:BFH) has announced that it will pay a dividend on the 21st of March, with investors receiving $0.21 per share. This payment means the dividend yield will be 1.3%, which is below the average for the industry.

See our latest analysis for Bread Financial Holdings

Bread Financial Holdings' Earnings Will Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Having paid out dividends for 8 years, Bread Financial Holdings has a good history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, Bread Financial Holdings' latest earnings report puts its payout ratio at 13%, showing that the company can pay out its dividends comfortably.

Over the next 3 years, EPS is forecast to expand by 73.8%. Analysts estimate the future payout ratio will be 11% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Bread Financial Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from $2.08 total annually to $0.84. The dividend has fallen 60% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Bread Financial Holdings' EPS has declined at around 11% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Bread Financial Holdings' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bread Financial Holdings' payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Bread Financial Holdings has been making. Overall, we don't think this company has the makings of a good 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Bread Financial Holdings that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.