Western Alliance Bancorporation (NYSE:WAL) Is Increasing Its Dividend To US$0.35

The board of Western Alliance Bancorporation (NYSE:WAL) has announced that it will be increasing its dividend on the 27th of August to US$0.35. Even though the dividend went up, the yield is still quite low at only 1.2%.

View our latest analysis for Western Alliance Bancorporation

Western Alliance Bancorporation's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Western Alliance Bancorporation is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 20.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

Western Alliance Bancorporation Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2019, the dividend has gone from US$1.00 to US$1.40. This means that it has been growing its distributions at 18% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Western Alliance Bancorporation has been growing its earnings per share at 26% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Western Alliance Bancorporation's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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. Just as an example, we've come across 4 warning signs for Western Alliance Bancorporation you should be aware of, and 1 of them is concerning. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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