It Might Not Be A Great Idea To Buy OFG Bancorp (NYSE:OFG) For Its Next Dividend

By
Simply Wall St
Published
September 24, 2020
NYSE:OFG

OFG Bancorp (NYSE:OFG) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 29th of September will not receive the dividend, which will be paid on the 15th of October.

OFG Bancorp's next dividend payment will be US$0.07 per share. Last year, in total, the company distributed US$0.28 to shareholders. Last year's total dividend payments show that OFG Bancorp has a trailing yield of 2.3% on the current share price of $12.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for OFG Bancorp

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. OFG Bancorp is paying out an acceptable 61% of its profit, a common payout level among most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

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

historic-dividend
NYSE:OFG Historic Dividend September 24th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. OFG Bancorp's earnings per share have fallen at approximately 22% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, OFG Bancorp has increased its dividend at approximately 5.8% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is OFG Bancorp an attractive dividend stock, or better left on the shelf? We're not overly enthused to see OFG 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. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that in mind though, if the poor dividend characteristics of OFG Bancorp don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for OFG Bancorp and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top 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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