Berkshire Hills Bancorp (NYSE:BHLB) Is Increasing Its Dividend To $0.18

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) has announced that it will be increasing its periodic dividend on the 1st of December to $0.18, which will be 50% higher than last year's comparable payment amount of $0.12. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

Our analysis indicates that BHLB is potentially undervalued!

Berkshire Hills Bancorp's Earnings Will Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive.

Berkshire Hills Bancorp has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Berkshire Hills Bancorp's payout ratio of 27% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 56.3%. Analysts forecast the future payout ratio could be 22% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $0.68 in 2012 to the most recent total annual payment of $0.48. The dividend has shrunk at around 3.4% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Berkshire Hills Bancorp's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Berkshire Hills Bancorp that investors need to be conscious of moving forward. 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.