When investing in dividend-yielding stocks it is important to understand the payout ratio the stock is offering. The payout ratio represents how much of the firm's net income is being paid out to its shareholders as a percentage of a company’s total earnings.
A stock with a payout ratio between the range of 75% to 95% is considered to be high as it pays out most of its earnings, which increases the chance the company cuts dividends, per Dividend.com.
Meanwhile, a payout ratio over 100% is considered to be unsustainable as the firm is distributing more money than they are earning.
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A healthy target range for a payout ratio is between 35% to 55%, since the company is distributing as much to its shareholders as it can while reinvesting the rest for future growth.
Here are two banking high-yielders that are paying out sustainable dividends:
- First of Long Island Corporation (NASDAQ:FLIC) offers a dividend yield of 4.82% or 84 cents per share annually, using quarterly payments. It has a decent track record of increasing its dividends for three consecutive years. The company — a provider of various financial services (saving accounts and capital gain accounts) — has a payout ratio of 39.93%, which is fairly healthy. Net income for the first nine months of 2022 was $37.0 million, an increase of $3.0 million, or 8.7%, versus the same period last year. First of Long Island also repurchased more than 698,000 shares of common stock during the first nine months of 2022 at a cost of $13.9 million. It expects repurchases to continue in 2022.
- Westamerica Bancorp (NASDAQ:WABC) offers a dividend yield of 2.68% or $1.68 per share annually, utilizing quarterly payments, with an aristocratic track record of increasing its dividends for 29 consecutive years. The San Rafael, California-based company runs a regional community bank and has approximately $7.5 billion in assets, as of 2021. It also has a payout ratio over 43%, which is considered to be healthy. Westamerica Bancorp’s net income for the third quarter 2022 was $34.8 million with diluted earnings per common share of $1.29, which was 37% higher than second quarter 2022 net income of $25.3 million and EPS of $0.94 per share.
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