Should You Buy Webster Financial Corporation (NYSE:WBS) For Its Upcoming Dividend?
Webster Financial Corporation (NYSE:WBS) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Webster Financial's shares before the 3rd of November to receive the dividend, which will be paid on the 14th of November.
The company's upcoming dividend is US$0.40 a share, following on from the last 12 months, when the company distributed a total of US$1.60 per share to shareholders. Based on the last year's worth of payments, Webster Financial has a trailing yield of 3.0% on the current stock price of $53.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Webster Financial can afford its dividend, and if the dividend could grow.
See our latest analysis for Webster Financial
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Webster Financial paying out a modest 48% of its earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Webster Financial, with earnings per share up 5.5% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Webster Financial has lifted its dividend by approximately 23% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Has Webster Financial got what it takes to maintain its dividend payments? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Webster Financial looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Webster Financial has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Webster Financial is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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