Star Bulk Carriers (NASDAQ:SBLK) Will Pay A Larger Dividend Than Last Year At $0.75

Star Bulk Carriers Corp. (NASDAQ:SBLK) will increase its dividend on the 20th of June to $0.75, which is 114% higher than last year's payment from the same period of $0.35. This takes the annual payment to 5.3% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Star Bulk Carriers

Star Bulk Carriers' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Star Bulk Carriers' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 100.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 66% by next year, which is in a pretty sustainable range.

Star Bulk Carriers' Dividend Has Lacked Consistency

Looking back, Star Bulk Carriers' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2019, the annual payment back then was $0.20, compared to the most recent full-year payment of $1.42. This works out to be a compound annual growth rate (CAGR) of approximately 48% a year over that time. Star Bulk Carriers has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Star Bulk Carriers has seen EPS rising for the last five years, at 28% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

We should note that Star Bulk Carriers has issued stock equal to 10% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Star Bulk Carriers Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 5 warning signs for Star Bulk Carriers that you should be aware of before investing. Is Star Bulk Carriers 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.