Stellar Bancorp (NYSE:STEL) Is Increasing Its Dividend To $0.14

Stellar Bancorp, Inc. (NYSE:STEL) has announced that it will be increasing its periodic dividend on the 31st of December to $0.14, which will be 7.7% higher than last year's comparable payment amount of $0.13. Even though the dividend went up, the yield is still quite low at only 1.6%.

Check out our latest analysis for Stellar Bancorp

Stellar Bancorp's Payment Expected To Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Having paid out dividends for 5 years, Stellar Bancorp has a good history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, Stellar Bancorp's latest earnings report puts its payout ratio at 24%, showing that the company can pay out its dividends comfortably.

Over the next 3 years, EPS is forecast to fall by 13.8%. Despite that, analysts estimate the future payout ratio could be 29% over the same time period, which is in a pretty comfortable range.

Stellar Bancorp's Dividend Has Lacked Consistency

Looking back, Stellar Bancorp's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the annual payment back then was $0.40, compared to the most recent full-year payment of $0.52. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Stellar Bancorp May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Stellar Bancorp's earnings per share has shrunk at approximately 2.0% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Stellar Bancorp is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Stellar Bancorp is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Stellar Bancorp (1 makes us a bit uncomfortable!) that you should be aware of before investing. 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.