Fifth Third Bancorp (NASDAQ:FITB) Is Increasing Its Dividend To US$0.30

By
Simply Wall St
Published
September 17, 2021
NasdaqGS:FITB
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Fifth Third Bancorp (NASDAQ:FITB) has announced that it will be increasing its dividend on the 15th of October to US$0.30. The announced payment will take the dividend yield to 2.7%, which is in line with the average for the industry.

View our latest analysis for Fifth Third Bancorp

Fifth Third Bancorp's Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Fifth Third Bancorp is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to fall by 0.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 37%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
NasdaqGS:FITB Historic Dividend September 17th 2021

Fifth Third Bancorp Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was US$0.04 in 2011, and the most recent fiscal year payment was US$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 41% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

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. It's encouraging to see Fifth Third Bancorp has been growing its earnings per share at 11% a year over the past five years. Fifth Third Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Fifth Third Bancorp's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Fifth Third Bancorp's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Fifth Third Bancorp is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Fifth Third Bancorp you should be aware of, and 1 of them doesn't sit too well with us. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.
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