OFG Bancorp (NYSE:OFG) has announced that it will be increasing its periodic dividend on the 15th of April to $0.30, which will be 20% higher than last year's comparable payment amount of $0.25. Despite this raise, the dividend yield of 2.3% is only a modest boost to shareholder returns.

View our latest analysis for OFG Bancorp

OFG Bancorp's Dividend Forecasted To Be Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

OFG Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. While past records don't necessarily translate into future results, the company's payout ratio of 24% also shows that OFG Bancorp is able to comfortably pay dividends.

Over the next 3 years, EPS is forecast to expand by 5.5%. Analysts forecast the future payout ratio could be 24% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from $0.32 total annually to $1.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. OFG Bancorp has seen EPS rising for the last five years, at 36% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

OFG Bancorp Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for OFG Bancorp (1 is significant!) 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 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.