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The board of Banc of California, Inc. (NYSE:BANC) has announced that it will pay a dividend of $0.10 per share on the 2nd of January. This means the annual payment will be 2.4% of the current stock price, which is lower than the industry average.
Check out our latest analysis for Banc of California
Banc of California's Dividend Forecasted To Be Well Covered By Earnings
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.
Looking at its history, Banc of California does not yet have a history of paying out dividends, with this year being its first year of distribution. But while Banc of California was able to finally pay out a dividend for the first time, its most recent earnings report shows the company's net income didn't cover its dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Banc of California is pulling cash from elsewhere to make its shareholders happy.
According to analysts, EPS should be several times higher in the next 3 years. In addtion, they also estimate the future payout ratio could reach 26% in the same time period, which we would be comfortable to see continuing.
Banc of California Doesn't Have A Long Payment History
The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Banc of California's earnings per share has shrunk at 26% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
An additional note is that the company has been raising capital by issuing stock equal to 42% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.