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Citizens Financial Group, Inc. (NYSE:CFG) has announced that it will pay a dividend of US$0.39 per share on the 13th of August. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.
See our latest analysis for Citizens Financial Group
Citizens Financial Group's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Citizens Financial Group was paying a whopping 105% as a dividend, but this only made up 35% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Over the next year, EPS is forecast to expand by 3.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.
Citizens Financial Group Doesn't Have A Long Payment History
Citizens Financial Group's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from US$0.40 in 2014 to the most recent annual payment of US$1.56. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Citizens Financial Group has seen EPS rising for the last five years, at 22% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Citizens Financial Group's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Citizens Financial Group you should be aware of, and 1 of them is significant. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
This article by Simply Wall St is general in nature. 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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