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The board of Huntington Bancshares Incorporated (NASDAQ:HBAN) has announced that it will pay a dividend on the 1st of July, with investors receiving US$0.15 per share. The dividend yield will be 4.7% based on this payment which is still above the industry average.
View our latest analysis for Huntington Bancshares
Huntington Bancshares' Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Huntington Bancshares was paying out 77% of earnings, but a comparatively small 33% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 80.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 52% which would be quite comfortable going to take the dividend forward.
Huntington Bancshares 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 first annual payment during the last 10 years was US$0.16 in 2012, and the most recent fiscal year payment was US$0.62. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. However, Huntington Bancshares' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.
We'd also point out that Huntington Bancshares has issued stock equal to 41% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On Huntington Bancshares' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Huntington Bancshares' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.