Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Citizens Financial Group, Inc. (NYSE:CFG) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Citizens Financial Group's shares before the 28th of October to receive the dividend, which will be paid on the 12th of November.
The company's next dividend payment will be US$0.39 per share. Last year, in total, the company distributed US$1.56 to shareholders. Based on the last year's worth of payments, Citizens Financial Group stock has a trailing yield of around 3.1% on the current share price of $50.28. If you buy this business for its dividend, you should have an idea of whether Citizens Financial Group's dividend is reliable and sustainable. So we need to investigate whether Citizens Financial Group can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Citizens Financial Group paid out a comfortable 31% of its profit last year.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Citizens Financial Group's earnings have been skyrocketing, up 26% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, seven years ago, Citizens Financial Group has lifted its dividend by approximately 21% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Citizens Financial Group worth buying for its dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Citizens Financial Group ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
While it's tempting to invest in Citizens Financial Group for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Citizens Financial Group (at least 1 which can't be ignored), and understanding them should be part of your investment process.
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.
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.
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