BOK Financial Corporation (NASDAQ:BOKF) has announced that it will be increasing its dividend on the 26th of August to US$0.52. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.
BOK Financial's Payment Has Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, BOK Financial's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, earnings per share is forecast to fall by 18.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 30%, which we are pretty comfortable with and we think is feasible on an earnings basis.
BOK Financial Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was US$1.00, compared to the most recent full-year payment of US$2.08. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. BOK Financial has impressed us by growing EPS at 20% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for BOK Financial's prospects of growing its dividend payments in the future.
Our Thoughts On BOK Financial's Dividend
In summary, while it's always good to see the dividend being raised, we don't think BOK Financial's payments are rock solid. While BOK Financial is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
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. For example, we've identified 2 warning signs for BOK Financial (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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What are the risks and opportunities for BOK Financial?
Trading at 23.8% below our estimate of its fair value
Earnings are forecast to grow 7.16% per year
Significant insider selling over the past 3 months
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BOK Financial Corporation operates as the financial holding company for BOKF, NA that provides various financial products and services in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri.
Excellent balance sheet established dividend payer.