State Street Corporation (NYSE:STT) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of October to $0.63. This will take the dividend yield to an attractive 3.7%, providing a nice boost to shareholder returns.
State Street's Payment Expected To Have Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.
Having distributed dividends for at least 10 years, State Street has a long history of paying out a part of its earnings to shareholders. Based on State Street's last earnings report, the payout ratio is at a decent 31%, meaning that the company is able to pay out its dividend with a bit of room to spare.
Over the next 3 years, EPS is forecast to expand by 32.2%. Analysts estimate the future payout ratio will be 31% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
State Street Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from $0.72 total annually to $2.52. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
We Could See State Street's Dividend Growing
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that State Street has been growing its earnings per share at 5.6% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
We Really Like State Street's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for State Street that investors should take into consideration. Is State Street not quite the opportunity you were looking for? Why not check out our selection of top 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.
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