OFG Bancorp's (NYSE:OFG) Shareholders Will Receive A Bigger Dividend Than Last Year

OFG Bancorp (NYSE:OFG) will increase its dividend from last year's comparable payment on the 16th of October to $0.22. Although the dividend is now higher, the yield is only 2.6%, which is below the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that OFG Bancorp's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for OFG Bancorp

OFG Bancorp's Dividend Forecasted To Be Well Covered By Earnings

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

Having distributed dividends for at least 10 years, OFG Bancorp has a long history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, OFG Bancorp's latest earnings report puts its payout ratio at 22%, showing that the company can pay out its dividends comfortably.

EPS is set to fall by 0.8% over the next 12 months. But if the dividend continues along the path it has been on recently, we estimate the future payout ratio could be 25%, which would be comfortable for the company to continue in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $0.24, compared to the most recent full-year payment of $0.88. This means that it has been growing its distributions at 14% per annum over that time. OFG Bancorp has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that OFG Bancorp has grown earnings per share at 31% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

OFG Bancorp Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, OFG Bancorp has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is OFG Bancorp not quite the opportunity you were looking for? Why not check out our selection of top 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.