State Street (NYSE:STT) Is Increasing Its Dividend To $0.84

State Street Corporation (NYSE:STT) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of October to $0.84. This will take the dividend yield to an attractive 3.0%, providing a nice boost to shareholder returns.

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State Street's Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

State Street has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but State Street's payout ratio of 34% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 36.7%. Analysts estimate the future payout ratio will be 31% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for State Street

State Street 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 $1.20 in 2015, and the most recent fiscal year payment was $3.36. This means that it has been growing its distributions at 11% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See State Street's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that State Street has been growing its earnings per share at 8.1% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like State Street's Dividend

Overall, a dividend increase is always good, and we think that State Street 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. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for State Street that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.