The board of Brookline Bancorp, Inc. (NASDAQ:BRKL) has announced that it will be increasing its dividend on the 27th of August to US$0.12. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.
Brookline 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. Based on the last payment, Brookline Bancorp was paying only paying out a fraction of earnings, but the payment was a massive 106% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
EPS is set to fall by 0.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 38%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Brookline Bancorp Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the dividend has gone from US$0.34 to US$0.48. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Brookline Bancorp has been growing its earnings per share at 12% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On Brookline Bancorp's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Brookline Bancorp's payments are rock solid. While Brookline Bancorp is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Brookline Bancorp has 2 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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