Stock Analysis

Should Income Investors Look At Webster Financial Corporation (NYSE:WBS) Before Its Ex-Dividend?

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NYSE:WBS
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Webster Financial Corporation (NYSE:WBS) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 8th of February to receive the dividend, which will be paid on the 23rd of February.

Webster Financial's next dividend payment will be US$0.40 per share, and in the last 12 months, the company paid a total of US$1.60 per share. Calculating the last year's worth of payments shows that Webster Financial has a trailing yield of 3.3% on the current share price of $48.22. If you buy this business for its dividend, you should have an idea of whether Webster Financial's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Webster Financial

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Webster Financial paid out 68% of its earnings to investors last year, a normal payout level for most businesses.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

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

historic-dividend
NYSE:WBS Historic Dividend February 3rd 2021

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Webster Financial's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

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, Webster Financial has increased its dividend at approximately 45% a year on average.

Final Takeaway

Should investors buy Webster Financial for the upcoming dividend? Webster Financial has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

If you want to look further into Webster Financial, it's worth knowing the risks this business faces. Case in point: We've spotted 3 warning signs for Webster Financial you should be aware of.

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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What are the risks and opportunities for Webster Financial?

Webster Financial Corporation operates as the bank holding company for Webster Bank, National Association that provides a range of banking, investment, and financial services to individuals, families, and businesses in the United States.

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Rewards

  • Trading at 54.6% below our estimate of its fair value

  • Earnings are forecast to grow 28.7% per year

  • Earnings grew by 57.6% over the past year

Risks

  • Shareholders have been substantially diluted in the past year

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