U.S. Bancorp Pays Out 40% of Its Profit as Dividends. Here's How Much Room It Has to Raise Them.

详细摘要

Coinbase pays us for certain activity generated through this link. Prices displayed are informational. Learn more There are several metrics by which to measure the quality and…

There are several metrics by which to measure the quality and sustainability of a dividend. In all of the major metrics, U.S. Bancorp (NYSE:USB) ranks as one of the best among bank stocks.

U.S. Bancorp is the parent company of U.S. Bank, the fifth largest bank in the country with about $703 billion in assets under management as of Sept. 30. In the third quarter, it raised its dividend to $0.54 per share, up from $0.52 per share in the second quarter. This marks the 16th straight year that U.S. Bancorp has raised its dividend, meaning it was able to increase its annual payout during COVID in 2020, when many banks reduced theirs.

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Of the major banks, only JPMorgan Chase (NYSE:JPM) and PNC Financial (NYSE:PNC) match U.S. Bancorp's 16-year streak. It also has one of the highest yields among large banks, at 3.54%. Among large banks, currently only Truist Financial (NYSE:TFC), with a yield of 4.13%, pays out a higher rate.

Then there is the third key metric, payout ratio, which determines how sustainable the yield is.

One of the things to watch out for with dividend stocks is a yield that is too high, unsustainably so, because they could be a dividend trap.

A dividend trap is a stock that has a high yield, but that high yield is more a function of its declining stock price -- because the yield is the dividend a company pays out annually divided by its current share price. So if the share price is down, the yield will be higher. And if the share price is down because the company is underperforming and seeing declining revenue and earnings, that's a red flag.

If the firm is still paying the same dividend when earnings are struggling, the yield will be high, but it may not be sustainable unless things turn around. So that's the trap.

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