Eastern Bankshares (NASDAQ:EBC) Will Pay A Dividend Of $0.10

Eastern Bankshares, Inc. (NASDAQ:EBC) will pay a dividend of $0.10 on the 15th of September. This means that the annual payment will be 2.8% of the current stock price, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Eastern Bankshares' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Eastern Bankshares

Eastern Bankshares' Earnings Will Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Eastern Bankshares is just starting to establish itself as being able to pay dividends to shareholders, given its short 2-year history of distributing earnings. While Eastern Bankshares' efforts to pay out a dividend can be applauded, its latest earnings report actually shows that the company didn't have enough earnings in the year to cover its dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that Eastern Bankshares is pulling cash from elsewhere to keep its shareholders happy.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. Additionally, they estimate future payout ratio will be 36% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.

Eastern Bankshares Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2021, the annual payment back then was $0.24, compared to the most recent full-year payment of $0.40. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. In the last three years, Eastern Bankshares' earnings per share has shrunk at approximately 2.7% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Eastern Bankshares' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Eastern Bankshares that investors need to be conscious of moving forward. 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.

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