A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, BankUnited, Inc. (NYSE:BKU) has paid a dividend to shareholders. It currently yields 2.9%. Should it have a place in your portfolio? Let’s take a look at BankUnited in more detail.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does BankUnited fare?
BankUnited has a trailing twelve-month payout ratio of 13%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 29% which, assuming the share price stays the same, leads to a dividend yield of around 3.0%. However, EPS is forecasted to fall to $2.99 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider BankUnited as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, BankUnited has a yield of 2.9%, which is on the low-side for Banks stocks.
Taking all the above into account, BankUnited is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three important factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BKU’s future growth? Take a look at our free research report of analyst consensus for BKU’s outlook.
- Valuation: What is BKU worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BKU is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.