Raymond James Financial (NYSE:RJF) Is Increasing Its Dividend To $0.42

The board of Raymond James Financial, Inc. (NYSE:RJF) has announced that it will be increasing its dividend by 24% on the 17th of January to $0.42, up from last year's comparable payment of $0.34. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.

Our analysis indicates that RJF is potentially undervalued!

Raymond James Financial's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Raymond James Financial is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 58.0% over the next year. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

Raymond James Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.347 in 2012 to the most recent total annual payment of $1.36. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

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. We are encouraged to see that Raymond James Financial has grown earnings per share at 19% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Raymond James Financial's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Raymond James Financial that investors should know about before committing capital to this stock. 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.