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Readers hoping to buy Eastern Bankshares, Inc. (NASDAQ:EBC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Eastern Bankshares' shares on or after the 3rd of September, you won't be eligible to receive the dividend, when it is paid on the 16th of September.
The company's next dividend payment will be US$0.11 per share. Last year, in total, the company distributed US$0.44 to shareholders. Calculating the last year's worth of payments shows that Eastern Bankshares has a trailing yield of 2.6% on the current share price of US$16.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Eastern Bankshares can afford its dividend, and if the dividend could grow.
See our latest analysis for Eastern Bankshares
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Eastern Bankshares's payout ratio is modest, at just 44% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Eastern Bankshares has grown its earnings rapidly, up 81% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Eastern Bankshares has delivered 16% dividend growth per year on average over the past four years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Has Eastern Bankshares got what it takes to maintain its dividend payments? Companies like Eastern Bankshares that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Eastern Bankshares more closely.