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Does Territorial Bancorp Inc. (NASDAQ:TBNK) Have A Place In Your Portfolio?

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Wade Goff
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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Territorial Bancorp Inc. (NASDAQ:TBNK) has paid dividends to shareholders, and these days it yields 4.4%. Does Territorial Bancorp tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Territorial Bancorp

5 questions to ask before buying a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

  • Is it paying an annual yield above 75% of dividend payers?

  • Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

  • Has dividend per share risen in the past couple of years?

  • 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?

NASDAQGS:TBNK Historical Dividend Yield January 24th 19
NASDAQGS:TBNK Historical Dividend Yield January 24th 19

How does Territorial Bancorp fare?

The current trailing twelve-month payout ratio for the stock is 55%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 46% which, assuming the share price stays the same, leads to a dividend yield of 3.8%. In addition to this, EPS is also forecasted to fall to $2 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

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 Territorial Bancorp as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Territorial Bancorp has a yield of 4.4%, which is high for Mortgage stocks.

Next Steps:

Taking into account the dividend metrics, Territorial Bancorp ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent factors you should further examine:

  1. Future Outlook: What are well-informed industry analysts predicting for TBNK’s future growth? Take a look at our free research report of analyst consensus for TBNK’s outlook.

  2. Valuation: What is TBNK 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 TBNK is currently mispriced by the market.

  3. Other 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 editorial-team@simplywallst.com.