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Washington Trust (WASH) Dividend Hike Fails to Cheer Investors

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Shares of Washington Trust Bancorp, Inc. (WASH - Free Report) declined 1.8% on Friday’s trading session despite the company announcing a 3.9% sequential increase in quarterly dividends for the fourth quarter.

Late last week, Washington Trust’s board of directors declared a quarterly dividend per share of 54 cents, indicating a sequential increase of two cents. The dividend will be paid out on Jan 7 to shareholders of record as of Jan 3, 2022. The increase represents the eleventh consecutive year of a dividend hike.

Based on the increased rate, the annual dividend came to $2.16 a share, resulting in an annualized yield of 3.9%, considering the company’s closing price of $55.18 as of Dec 17. The yield is not only attractive to income investors but also represents a steady income stream. It is also impressive compared with the industry’s average of 1.93%.

In addition to the dividend hike, Washington Trust also has a share repurchase program in place. In November, Washington Trust’s board of directors approved a repurchase of about 5% of its outstanding common stock or 850,000 shares. WASH’s new buyback plan expires on Dec 31, 2022. As of Oct 31, 2021, the company had 17.3 million shares outstanding.

Washington Trust’s ability to sustain the hiked dividend depends on earnings growth and the payout ratio. The company’s current payout ratio is 48.26%, higher than the industry’s average 23.15%, indicating limited scope for a steady dividend increase.

Additionally, Washington Trust’s performance does not depict a robust earnings picture. Over the next five years, WASH’s earnings are projected to grow at an 8.1% rate, significantly lower than the industry average of 46.5%.

Weakness in earnings indicates that Washington Trust’s capital deployments are not sustainable and this has likely resulted in muted investor confidence in the stock. Also, low interest rates and weak loan demand are likely to hurt its financials in the near term.

WASH carries a Zacks Rank #3 (Hold) at present. The company has gained 5.2% compared with its industry’s rally of 6.9% over the past six months.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Companies Undertaking Similar Action

Over the past few months, several banks have rewarded shareholders with dividend hikes. Some of these are Farmers National Banc Corp. (FMNB - Free Report) , Saratoga Investment Corp. (SAR - Free Report) and Bank OZK (OZK - Free Report) .

Farmers National announced a sequential hike in the quarterly dividend of 27.3% to 14 cents per share. The dividend will be paid out on Dec 31 to shareholders of record as of Dec 10, 2021.

This marks the 6th consecutive quarter of an increase by Farmers National. Prior to this, FMNB hiked the dividend by 10% to 11 cents per share.

Farmers National’s management noted, “since 2015, our annual cash dividend has increased at an impressive 26% compound annual growth rate, reflecting our strong financial results and commitment to returning capital to shareholders.”

Saratoga Investment’s board of directors has announced a 1.9% sequential hike in the dividend for the fiscal third quarter, ended Nov 30, 2021. SAR will now pay a dividend of 53 cents per share, up from 52 cents paid out in the prior quarter.

The increased dividend will be paid out on Jan 19 to shareholders of record as of Jan 4, 2022. This marks Saratoga Investment’s fourth dividend hike in fiscal 2022.

Bank OZK declared a quarterly cash dividend of 29 cents per share, reflecting a rise of 1.8% from the prior payout. The dividend was paid out on Oct 22 to shareholders of record as of Oct 15, 2021.

This was the 45th consecutive quarter of a dividend hike by Bank OZK. Prior to this, the company hiked its dividend by 1.8% to 28.5 cents per share in July.