Huntington Bancshares Incorporated (NASDAQ:HBAN) announced plans to distribute dividends of $0.155 per share on January 2nd, which will result in a dividend yield of 6.5%. The bank has a solid track record, having consistently paid dividends for over ten years and maintaining a payout ratio of 40%, which indicates strong earnings coverage of dividends. Despite an expected 7.2% EPS drop over the next three years, the payout ratio is only projected to rise slightly to 47%. The company's dividends have grown significantly with a compound annual growth rate (CAGR) of 15% since 2013, although future growth may be limited due to a modest annual EPS growth of just 3.2%.
In parallel, Prosperity Bancshares (NYSE:NYSE:PB) has decided to increase its dividend by 1.8% to $0.56 on January 2nd, bringing its dividend yield to 4.2%, in line with the industry standard. The company's decade-long history of paying dividends and a 41% payout ratio suggest that dividends are well-covered by earnings. Analysts are forecasting a 5.5% EPS growth over the next three years and expect the payout ratio to potentially remain at 40%.
Prosperity Bancshares' consistent dividend policy has resulted in an annual dividend rise from $0.86 in 2013 to $2.20 now, translating to a CAGR of approximately 9.8%. However, given the modest annual earnings growth rate of just 3.4% over the past five years, an uptick in earnings growth is needed for further dividend increases.
Both Huntington Bancshares and Prosperity Bancshares have demonstrated their ability to generate significant cash and comfortably cover distributions with earnings, making them appealing income stocks for investors. However, investors should also consider other factors such as potential warning signs identified for Prosperity Bancshares.
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