Charles Schwab's (NYSE:SCHW) Dividend Will Be Increased To $0.27

The Charles Schwab Corporation (NYSE:SCHW) has announced that it will be increasing its periodic dividend on the 28th of February to $0.27, which will be 8.0% higher than last year's comparable payment amount of $0.25. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Charles Schwab

Charles Schwab's Projected Earnings Seem Likely To Cover Future Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Charles Schwab's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 86.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Charles Schwab Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.24 in 2015, and the most recent fiscal year payment was $1.00. This means that it has been growing its distributions at 15% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 2.2% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Charles Schwab could always pay out a higher proportion of earnings to increase shareholder returns.

Charles Schwab Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Charles Schwab is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Charles Schwab that you should be aware of before investing. Is Charles Schwab not quite the opportunity you were looking for? Why not check out our selection of top 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.