The board of South Plains Financial, Inc. (NASDAQ:SPFI) has announced that it will be paying its dividend of $0.17 on the 17th of February, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

South Plains Financial's Earnings Will Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end.

South Plains Financial has established itself as a dividend paying company, given its 6-year history of distributing earnings to shareholders. While past data isn't a guarantee for the future, South Plains Financial's latest earnings report puts its payout ratio at 17%, showing that the company can pay out its dividends comfortably.

Over the next 3 years, EPS is forecast to expand by 17.7%. The future payout ratio could be 16% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

South Plains Financial Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of $0.12 in 2020 to the most recent total annual payment of $0.68. This works out to be a compound annual growth rate (CAGR) of approximately 34% a year over that time. South Plains Financial has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that South Plains Financial has grown earnings per share at 11% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like South Plains Financial's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 4 analysts we track are forecasting for South Plains Financial for free with public analyst estimates for the company. Is South Plains Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.