Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a given company to understand the quality of its dividend and how that's changed over the past five years.
The company we're looking at today is Synovus Financial
Synovus is a regional bank that, like peers Huntington Bancshares
To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years, and if so, how much it has grown.
Synovus cut its dividend to a mere $0.01 per quarter during the financial crisis, and that's where it remains today.
The tools we use to evaluate a dividend's safety are:
- The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
- The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business's health. The FCF payout ratio measures the percent of free cash flow devoted toward paying the dividend. Again, a ratio greater than 80% could be a red flag.
Source: S&P Capital IQ.
Synovus has been unprofitable on an earnings basis since 2008, giving it a negative P/E payout ratio. During that time, though, it has maintained positive free cash flow and a low free cash flow payout ratio.
Source: S&P Capital IQ.
Synovus' low yield makes some alternatives out there in the industry look more attractive. M&T Bank
Another tool for better investing
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- Add Synovus Financial to My Watchlist.
Follow Dan Dzombak on Twitter at @DanDzombak to check out his musings and see what articles he finds interesting. The Motley Fool owns shares of Huntington Bancshares, KeyCorp, and PNC Financial Services Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.