Washington Trust Bancorp (NASDAQ:WASH) Is Due To Pay A Dividend Of $0.56

Washington Trust Bancorp, Inc. (NASDAQ:WASH) has announced that it will pay a dividend of $0.56 per share on the 10th of October. This means the annual payment is 7.5% of the current stock price, which is above the average for the industry.

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Washington Trust Bancorp Not Expected To Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much.

Washington Trust Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is an alarming sign that could mean that Washington Trust Bancorp's dividend at its current rate may no longer be sustainable for longer.

Earnings per share is forecast to rise by 107.8% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

See our latest analysis for Washington Trust Bancorp

Washington Trust Bancorp Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $1.28 total annually to $2.24. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Washington Trust Bancorp's EPS has declined at around 29% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

An additional note is that the company has been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Washington Trust Bancorp that investors need to be conscious of moving forward. Is Washington Trust Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.