The board of Huntington Bancshares Incorporated (NASDAQ:HBAN) has announced that it will pay a dividend on the 2nd of January, with investors receiving $0.155 per share. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Huntington Bancshares

Huntington Bancshares' Payment Expected To Have Solid Earnings Coverage

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

Having distributed dividends for at least 10 years, Huntington Bancshares has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 40%, which means that Huntington Bancshares would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to fall by 17.8%. Fortunately, analysts forecast the future payout ratio to be 49% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Huntington Bancshares Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $0.16, compared to the most recent full-year payment of $0.62. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Huntington Bancshares May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 3.2% per annum over the last five years, which admittedly is a bit slow. Huntington Bancshares is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

We Really Like Huntington Bancshares' Dividend

Overall, we like to see the dividend staying consistent, and we think Huntington Bancshares might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.