Truist Financial Corporation (NYSE:TFC) has announced that it will pay a dividend of $0.52 per share on the 3rd of March. This makes the dividend yield 4.4%, which will augment investor returns quite nicely.

See our latest analysis for Truist Financial

Truist Financial's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Truist Financial 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 Truist Financial's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is very worrying for shareholders, as this shows that Truist Financial will not be able to sustain its dividend at its current rate.

Over the next 3 years, EPS is forecast to expand by 165.3%. The future payout ratio could be 45% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Truist Financial Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $0.96, compared to the most recent full-year payment of $2.08. This means that it has been growing its distributions at 8.0% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Truist Financial's EPS has declined at around 34% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Truist Financial's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Truist Financial is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Truist Financial that investors should know about before committing capital to this stock. 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.