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Fifth Third Bancorp (NASDAQ:FITB) Has Announced That It Will Be Increasing Its Dividend To US$0.30

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The board of Fifth Third Bancorp (NASDAQ:FITB) has announced that it will be increasing its dividend on the 15th of October to US$0.30. The announced payment will take the dividend yield to 2.7%, which is in line with the average for the industry.

Check out our latest analysis for Fifth Third Bancorp

Fifth Third Bancorp's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Fifth Third Bancorp is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to fall by 0.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 37%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
historic-dividend

Fifth Third Bancorp Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the dividend has gone from US$0.04 to US$1.20. This implies that the company grew its distributions at a yearly rate of about 41% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Fifth Third Bancorp has impressed us by growing EPS at 11% per year over the past five years. Fifth Third Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Fifth Third Bancorp's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Fifth Third Bancorp is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Fifth Third Bancorp (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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