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BankUnited (BKU) Hikes Dividend by 9.5%: Is it Worth a Look?

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BankUnited, Inc. BKU raised its quarterly cash dividend by 9.5% from 21 cents to 23 cents per share. It will be paid out on Apr 30 to shareholders of record as of Apr 14.

Unlike other companies in the same space that hike dividends at frequent intervals, BankUnited has been consistent with its dividend payment for a long time.

Thus, considering last day’s closing price of $32.96, the company’s dividend yield currently stands at 2.79%. Not only is the yield attractive for income investors but it also represents a steady income stream.

The company’s solid liquidity position and earnings strength are expected to help it sustain the current level of capital-deployment activities, thus continuing to enhance shareholder value.

BankUnited also has an efficient share repurchase program in place. In September 2019, it had authorized the repurchase of up to $150 million worth of shares. To date, the company has repurchased shares worth $39.4 million at a price of $33.63 per share.

However, let’s see whether it is worth considering BankUnited stock based on this dividend income. A deeper research into the bank’s financial performance and fundamentals will help understand its risks and rewards.

Given a strong balance sheet position, the company is poised to grow organically as well as through acquisitions. It has rapidly expanded across the New York metropolitan market and Florida. Moreover, robust economic improvement in these regions continues to benefit the company’s loan portfolio.

Also, BankUnited stock looks undervalued right now based on its price-to-earnings (P/E) and price-to-book (P/B) ratios. The company currently has a P/E (F1) ratio of 10.73 and a P/B ratio of 1.06, which are below the industry averages of 11.23 and 1.27, respectively. Also, the stock has a Value Score of B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.

Based on the above-mentioned factors, BankUnited stock seems worth investing in, but one must consider the following downsides before taking any final decision.

The company continues to face margin pressure. Its net interest margin (NIM) has been declining since the past several years, from 4.61% in 2014 to 2.47% in 2019. In fact, NIM is expected to remain under pressure, owing to the Federal Reserve’s accommodative policy.

Moreover, while the company’s expenses declined in 2019, owing to the absence of amortization of FDIC indemnification assets, the same has been mounting over the past several years mainly due to a rise in employee compensation and benefits costs, deposit insurance expenses, and professional fees. Thus, elevated expenses might hurt the bottom line to an extent.

The company’s return on equity (ROE) of 10.80% compares unfavorably with the industry average of 11.95%. This shows that it is less efficient in utilizing shareholders’ funds compared with peers.

Looking at its price performance, shares of the company have lost 10% in the past year against 13.4% growth recorded by the industry it belongs to.

Currently, BankUnited carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other finance stocks, which have raised their dividends recently, are Bank OZK (OZK - Free Report) , First Horizon National Corp. FHN and Wintrust Financial Corporation WTFC. Bank OZK raised its quarterly dividend by 4%, while Wintrust Financial increased by 12%. First Horizon announced a 7% hike in its common stock dividend.

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