The board of Western Alliance Bancorporation (NYSE:WAL) has announced that the dividend on 26th of August will be increased to $0.36, which will be 2.9% higher than last year's payment of $0.35 which covered the same period. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.
Western Alliance Bancorporation's Earnings Will Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.
Western Alliance Bancorporation is just starting to establish itself as being able to pay dividends to shareholders, given its short 3-year history of distributing earnings. Based on its last earnings report however, the payout ratio is at a comfortable 15%, meaning that Western Alliance Bancorporation may be able to sustain this dividend for future years if it continues on this earnings trend.
Looking forward, earnings per share is forecast to rise by 38.7% over the next year. If the dividend continues on this path, the future payout ratio could be 12% by next year, which we think can be pretty sustainable going forward.
Western Alliance Bancorporation Doesn't Have A Long Payment History
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2019, the dividend has gone from $1.00 total annually to $1.40. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Western Alliance Bancorporation has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Western Alliance Bancorporation has seen EPS rising for the last five years, at 27% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Western Alliance Bancorporation Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Western Alliance Bancorporation that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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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