Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, U.S. Bancorp (NYSE:USB) has been paying a dividend to shareholders. Today it yields 3.0%. Does U.S. Bancorp tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 questions I ask before picking 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 its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does U.S. Bancorp fit our criteria?
The current trailing twelve-month payout ratio for the stock is 32%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 38% which, assuming the share price stays the same, leads to a dividend yield of around 3.4%. Furthermore, EPS should increase to $4.34. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality facing USB investors is that whilst it has continued to pay shareholders dividend, dividends are lower today, than they were a decade ago. Though this may not be a serious red flag, strong dividend stocks should always strive to increase its payout over time.
Compared to its peers, U.S. Bancorp has a yield of 3.0%, which is high for Banks stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, U.S. Bancorp is definitely worth considering for investors looking to build a dedicated income portfolio. 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. Below, I’ve compiled three important aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for USB’s future growth? Take a look at our free research report of analyst consensus for USB’s outlook.
- Valuation: What is USB 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 USB is currently mispriced by the market.
- 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 email@example.com.