Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, BB&T Corporation (NYSE:BBT) has paid a dividend to shareholders. It currently yields 3.2%. Does BB&T tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does BB&T pass our checks?
The current trailing twelve-month payout ratio for the stock is 38%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 40%, leading to a dividend yield of around 3.4%. Moreover, EPS should increase to $4.27.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from BB&T fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, BB&T has a yield of 3.2%, which is high for Banks stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about BB&T from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three fundamental aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BBT’s future growth? Take a look at our free research report of analyst consensus for BBT’s outlook.
- Valuation: What is BBT 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 BBT 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.