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There is a lot to be liked about Berkshire Hills Bancorp, Inc. (NYSE:BHLB) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 3.0% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Berkshire Hills Bancorp in more detail.
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does Berkshire Hills Bancorp fit our criteria?
Berkshire Hills Bancorp has a trailing twelve-month payout ratio of 39%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect BHLB’s payout to fall to 32% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.0%. However, EPS should increase to $2.52, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. BHLB has increased its DPS from $0.64 to $0.92 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes BHLB a true dividend rockstar.
In terms of its peers, Berkshire Hills Bancorp generates a yield of 3.0%, which is high for Banks stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Berkshire Hills Bancorp is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three essential factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for BHLB’s future growth? Take a look at our free research report of analyst consensus for BHLB’s outlook.
- Valuation: What is BHLB worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BHLB is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.