Banco de Chile (SNSE:CHILE) Will Pay A Larger Dividend Than Last Year At CL$5.34

The board of Banco de Chile (SNSE:CHILE) has announced that it will be increasing its dividend on the 31st of March to CL$5.34. This takes the dividend yield from 6.6% to 6.6%, which shareholders will be pleased with.

Check out our latest analysis for Banco de Chile

Banco de Chile's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Banco de Chile's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 1.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from CL$2.56 to CL$5.34. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Banco de Chile might have put its house in order since then, but we remain cautious.

Banco de Chile Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Banco de Chile has seen EPS rising for the last five years, at 7.6% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Banco de Chile will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 2 warning signs for Banco de Chile (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.