Stellar Bancorp (NYSE:STEL) Will Pay A Dividend Of $0.13

Stellar Bancorp, Inc. (NYSE:STEL) has announced that it will pay a dividend of $0.13 per share on the 29th of December. This means the annual payment will be 2.2% of the current stock price, which is lower than the industry average.

See 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 only 4 years, Stellar Bancorp does not have much of a history being a dividend paying company. Diving into the company's earnings report, the payout ratio is set at 26%, which is a decent ratio of dividend payout to earnings, and may sustain future dividends if the company stays at its current trend.

Looking forward, earnings per share is forecast to fall by 1.4% over the next 3 years. Despite that, analysts estimate the future payout ratio could be 25% over the same time period, which is in a pretty comfortable range.

Stellar Bancorp's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2019, the dividend has gone from $0.40 total annually to $0.52. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

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. Although it's important to note that Stellar Bancorp's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On Stellar Bancorp's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Stellar Bancorp has been making. We don't think Stellar Bancorp is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Stellar Bancorp (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.