OFG Bancorp (NYSE:OFG) will increase its dividend on the 15th of April to $0.35, which is 17% higher than last year's payment from the same period of $0.30. The payment will take the dividend yield to 3.0%, which is in line with the average for the industry.

OFG Bancorp's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

OFG Bancorp has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but OFG Bancorp's payout ratio of 26% is a good sign as this means that earnings decently cover dividends.

EPS is set to fall by 0.06% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 28% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.40 in 2016 to the most recent total annual payment of $1.20. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. OFG Bancorp has seen EPS rising for the last five years, at 29% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

OFG Bancorp Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, OFG Bancorp has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is OFG Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.