Why It Might Not Make Sense To Buy New York Community Bancorp, Inc. (NYSE:NYCB) For Its Upcoming Dividend

By
Simply Wall St
Published
November 02, 2020
NYSE:NYCB

It looks like New York Community Bancorp, Inc. (NYSE:NYCB) is about to go ex-dividend in the next two days. Investors can purchase shares before the 5th of November in order to be eligible for this dividend, which will be paid on the 17th of November.

New York Community Bancorp's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Calculating the last year's worth of payments shows that New York Community Bancorp has a trailing yield of 8.2% on the current share price of $8.31. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether New York Community Bancorp has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for New York Community Bancorp

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:NYCB Historic Dividend November 2nd 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. New York Community Bancorp's earnings per share have fallen at approximately 5.3% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. New York Community Bancorp has seen its dividend decline 3.8% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid New York Community Bancorp? We're not overly enthused to see New York Community Bancorp's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

So if you're still interested in New York Community Bancorp despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for New York Community Bancorp that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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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