Washington Trust Bancorp, Inc.'s (NASDAQ:WASH) investors are due to receive a payment of $0.56 per share on 11th of April. Based on this payment, the dividend yield on the company's stock will be 7.2%, which is an attractive boost to shareholder returns.

Washington Trust Bancorp's Earnings Will Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Washington Trust Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Washington Trust Bancorp's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Washington Trust Bancorpis pulling cash from elsewhere to keep its shareholders happy.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. In addtion, they also estimate the future payout ratio could reach 71% in the same time period, which we would be comfortable to see continuing.

View our latest analysis for Washington Trust Bancorp

Washington Trust 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 2015, the annual payment back then was $1.16, compared to the most recent full-year payment of $2.24. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. 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

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 14% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

An additional note is that the company has been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Washington Trust Bancorp is a great stock to add to your portfolio if income is your focus.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.