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State Street Corporation (NYSE:STT) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of October to $0.63. This makes the dividend yield 3.7%, which is above the industry average.
View our latest analysis for State Street
State Street's Payment Expected To Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.
Having distributed dividends for at least 10 years, State Street has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 31%, which means that State Street would be able to pay its last dividend without pressure on the balance sheet.
Looking forward, EPS is forecast to rise by 31.2% over the next 3 years. Analysts forecast the future payout ratio could be 32% over the same time horizon, which is a number we think the company can maintain.
State Street Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was $0.72, compared to the most recent full-year payment of $2.52. This means that it has been growing its distributions at 13% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Has Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. State Street has seen EPS rising for the last five years, at 5.6% per annum. State Street definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
State Street Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that State Street 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for State Street that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.