Provident Financial Services, Inc.'s (NYSE:PFS) investors are due to receive a payment of $0.24 per share on 30th of August. Based on this payment, the dividend yield on the company's stock will be 5.1%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Provident Financial Services

Provident Financial Services Not Expected To Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Provident Financial Services has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions unfortunately do not guarantee future ones, and Provident Financial Services' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign that could mean that Provident Financial Services' dividend at its current rate may no longer be sustainable for longer.

Over the next year, EPS is forecast to expand by 58.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the future payout ratio reaching 109% over the next year.

Provident Financial Services Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.60 in 2014, and the most recent fiscal year payment was $0.96. This means that it has been growing its distributions at 4.8% per annum 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 Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Provident Financial Services' EPS has fallen by approximately 21% per year during 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. 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.

An additional note is that the company has been raising capital by issuing stock equal to 72% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.