Eastern Bankshares' (NASDAQ:EBC) Upcoming Dividend Will Be Larger Than Last Year's

Eastern Bankshares, Inc. (NASDAQ:EBC) will increase its dividend from last year's comparable payment on the 16th of June to $0.13. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

We've discovered 2 warning signs about Eastern Bankshares. View them for free.

Eastern Bankshares Not Expected To Earn Enough To Cover Its Payments

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Eastern Bankshares is just starting to establish itself as being able to pay dividends to shareholders, given its short 4-year history of distributing earnings. While Eastern Bankshares' efforts to pay out a dividend can be applauded, its latest earnings report actually shows that the company didn't have enough earnings in the year to cover its dividends. This is worrying for investors as it points to Eastern Bankshares' dividends being unsustainable in the long term.

Earnings per share is forecast to rise by 157.3% over the next year. If the dividend continues on its recent course, the future payout ratio in 12 months could be 149%, which is a bit high and could start applying pressure to the balance sheet.

Check out our latest analysis for Eastern Bankshares

Eastern Bankshares Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The annual payment during the last 4 years was $0.24 in 2021, and the most recent fiscal year payment was $0.52. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Eastern Bankshares has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 13% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

An additional note is that the company has been raising capital by issuing stock equal to 23% 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.

We're Not Big Fans Of Eastern Bankshares' Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, the dividend is not reliable enough to make this a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Eastern Bankshares that investors should know about before committing capital to this stock. 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.