The board of Citizens Financial Group, Inc. (NYSE:CFG) has announced that it will be increasing its dividend by 7.7% on the 16th of August to $0.42, up from last year's comparable payment of $0.39. This takes the dividend yield to 4.2%, which shareholders will be pleased with.

Check out our latest analysis for Citizens Financial Group

Citizens Financial Group's Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Citizens Financial Group has a good history of paying out dividends, with its current track record at 8 years. Taking data from its last earnings report, calculating for the company's payout ratio of 33%shows that Citizens Financial Group would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, EPS is forecast to rise by 13.2% over the next 3 years. Analysts forecast the future payout ratio could be 33% over the same time horizon, which is a number we think the company can maintain.

Citizens Financial Group Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 8 years was $0.40 in 2014, and the most recent fiscal year payment was $1.56. This means that it has been growing its distributions at 19% per annum over that time. Citizens Financial Group 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Citizens Financial Group has impressed us by growing EPS at 13% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We should note that Citizens Financial Group has issued stock equal to 16% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Citizens Financial Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Citizens Financial Group is a strong income stock thanks to its track record and growing earnings. 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.