U.S. Bancorp (NYSE:USB) Has Affirmed Its Dividend Of US$0.42
U.S. Bancorp (NYSE:USB) will pay a dividend of US$0.42 on the 15th of July. The dividend yield will be 3.1% based on this payment which is still above the industry average.
View our latest analysis for U.S. Bancorp
U.S. Bancorp's Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, U.S. Bancorp's dividend was only 44% of earnings, however it was paying out 109% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Over the next year, EPS is forecast to expand by 21.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.
U.S. Bancorp Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$0.20 in 2011, and the most recent fiscal year payment was US$1.68. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. However, U.S. Bancorp has only grown its earnings per share at 3.6% per annum over the past five years. Growth of 3.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While U.S. Bancorp is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for U.S. Bancorp that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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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