The board of Bankwell Financial Group, Inc. (NASDAQ:BWFG) has announced that it will pay a dividend of $0.20 per share on the 23rd of May. Based on this payment, the dividend yield will be 3.4%, which is fairly typical for the industry.

See our latest analysis for Bankwell Financial Group

Bankwell Financial Group's Earnings Will Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Having paid out dividends for 7 years, Bankwell Financial Group has a good history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, Bankwell Financial Group's payout ratio sits at 16%, an extremely comfortable number that shows that it can pay its dividend.

EPS is set to fall by 18.3% over the next 12 months. But if the dividend continues along recent trends, we estimate the future payout ratio could be 23%, which we would consider to be quite comfortable looking forward, with most of the company's earnings left over to grow the business in the future.

Bankwell Financial Group Is Still Building Its Track Record

It is great to see that Bankwell Financial Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the dividend has gone from $0.20 total annually to $0.80. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Bankwell Financial Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Bankwell Financial Group has been growing its earnings per share at 22% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Bankwell Financial Group Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Bankwell Financial Group that investors should take into consideration. Is Bankwell Financial Group not quite the opportunity you were looking for? Why not check out our selection of top 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.

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