Cullen/Frost Bankers, Inc. (NYSE:CFR) has announced that it will be increasing its periodic dividend on the 15th of September to $0.87, which will be 16% higher than last year's comparable payment amount of $0.75. Even though the dividend went up, the yield is still quite low at only 2.3%.

View our latest analysis for Cullen/Frost Bankers

Cullen/Frost Bankers' Payment Expected To Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.

Having distributed dividends for at least 10 years, Cullen/Frost Bankers has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Cullen/Frost Bankers' payout ratio of 46% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 58.9%. Analysts forecast the future payout ratio could be 39% over the same time horizon, which is a number we think the company can maintain.

Cullen/Frost Bankers Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.84 in 2012 to the most recent total annual payment of $3.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Cullen/Frost Bankers May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 4.9% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 4.9% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

We Really Like Cullen/Frost Bankers' Dividend

Overall, a dividend increase is always good, and we think that Cullen/Frost Bankers is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 12 analysts we track are forecasting for Cullen/Frost Bankers for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.