Stock Analysis

Valley National Bancorp (NASDAQ:VLY) Is Due To Pay A Dividend Of $0.11

Source: Shutterstock

The board of Valley National Bancorp (NASDAQ:VLY) has announced that it will pay a dividend on the 3rd of January, with investors receiving $0.11 per share. The dividend yield will be 3.8% based on this payment which is still above the industry average.

Our analysis indicates that VLY is potentially undervalued!

Valley National Bancorp's Earnings Will Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Valley National Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Valley National Bancorp's last earnings report, the payout ratio is at a decent 41%, meaning that the company is able to pay out its dividend with a bit of room to spare.

The next 3 years are set to see EPS grow by 49.0%. Analysts estimate the future payout ratio will be 29% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

NasdaqGS:VLY Historic Dividend December 8th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.64 in 2012 to the most recent total annual payment of $0.44. Doing the maths, this is a decline of about 3.7% per year. A company that decreases its dividend over time generally isn't what we are looking for.

We Could See Valley National Bancorp's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Valley National Bancorp has impressed us by growing EPS at 7.5% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We should note that Valley National Bancorp has issued stock equal to 20% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Valley National Bancorp's Dividend

Overall, a consistent dividend is a good thing, and we think that Valley National Bancorp has the ability to continue this into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Valley National Bancorp that investors need to be conscious of moving forward. Is Valley National Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Valley National Bancorp is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis