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Associated Banc-Corp (NYSE:ASB) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of December to $0.23. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.
View our latest analysis for Associated Banc-Corp
Associated Banc-Corp's Dividend Forecasted To Be Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.
Associated Banc-Corp has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 73%, which means that Associated Banc-Corp would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to expand by 72.8%. Analysts estimate the future payout ratio will be 37% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
Associated Banc-Corp Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.36 in 2014, and the most recent fiscal year payment was $0.92. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth Is Doubtful
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Associated Banc-Corp's earnings per share has shrunk at approximately 9.5% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
In Summary
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.