Fulton Financial Corporation (NASDAQ:FULT) has announced that it will be increasing its periodic dividend on the 15th of January to $0.18, which will be 5.9% higher than last year's comparable payment amount of $0.17. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.
See our latest analysis for Fulton Financial
Solid dividend yields are great, but they only really help us if the payment is sustainable.
Fulton Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Fulton Financial's payout ratio of 42% is a good sign as this means that earnings decently cover dividends.
Over the next 3 years, EPS is forecast to expand by 36.3%. Analysts estimate the future payout ratio will be 38% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from $0.32 total annually to $0.68. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Fulton Financial's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Fulton Financial is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
An additional note is that the company has been raising capital by issuing stock equal to 11% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.