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.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Banc of California's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Banc of California that investors need to be conscious of moving forward. 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.