Is the cash dividend sustainable given Popular, Inc.’s current earnings, cash flow, and capital adequacy ratios?
Answer
The short news release tells us only that Popular, Inc. (NASDAQ BPOP) has declared a $0.1328‑per‑share monthly cash dividend on its 6.375 % non‑cumulative preferred stock (Series A, 2003) and that the payment will be made on September 2 2025. It does not provide any of the financial data that are needed to judge whether that dividend is sustainable—namely, the bank’s recent earnings, cash‑flow generation, or capital‑adequacy ratios.
Below is a step‑by‑step framework you can use (and the typical thresholds you would compare against) to answer the question once the relevant figures are obtained from Popular’s most recent quarterly or annual filings (Form 10‑Q, Form 10‑K, or the bank’s investor‑relations releases).
1. What “sustainability” means for a preferred‑stock dividend?
- Preferred dividends are contractual – the bank is obligated to pay them as long as the preferred shares are outstanding, unless the dividend is declared “non‑cumulative” (i.e., missed payments can be omitted).
- Sustainability therefore hinges on the bank’s ability to generate enough net income (to cover the dividend) and cash (to actually fund the payment) while still meeting regulatory capital requirements.
2. Key financial metrics to evaluate
| Metric | Why it matters | Typical “safe” benchmark for a U.S. bank |
|---|---|---|
| Net Income (or Adjusted Net Income) | Determines the absolute pool of earnings that can be allocated to dividend. | Dividend coverage ≥ 1.0 (i.e., earnings ≥ dividend). |
| Dividend‑to‑Net‑Income (Payout Ratio) | Shows what share of earnings is used for the preferred dividend. | Payout ≤ 50 % is generally comfortable for a bank with modest earnings volatility. |
| Operating Cash Flow (OCF) / Free Cash Flow (FCF) | Cash is needed to actually make the payment; a strong cash‑flow cushion reduces the risk of missed dividends. | OCF ≥ 1.5 × dividend outflow is a common rule of thumb. |
| Capital‑Adequacy Ratios (CET1, Tier 1, Total Capital) | Regulators require banks to hold a minimum amount of capital relative to risk‑weighted assets. A dividend that erodes capital could trigger supervisory action. | CET1 ≥ 12 % (well above the 8 % regulatory floor) is considered robust. |
| Liquidity Coverage Ratio (LCR) | Ensures the bank can meet short‑term cash‑flow needs, including dividend payments. | LCR ≥ 100 % (i.e., enough high‑‑quality liquid assets to cover 30‑day net cash outflows). |
| Leverage Ratio (Tier 1 Capital / Total Consolidated Assets) | A low leverage ratio can signal that the bank is already highly leveraged; paying dividends may be riskier. | Leverage ≥ 5 % is a common minimum for large U.S. banks. |
3. How to compute the dividend’s size in context
Determine the total preferred‑stock dividend outlay
Shares outstanding × $0.1328 per share = total monthly cash outflow.
For illustration, if 10 million Series A shares are outstanding, the monthly payment would be:
10,000,000 × $0.1328 ≈ $1.33 million(≈ $15.9 million per year).Compare to earnings and cash flow
Example: If Popular reported $1.0 billion net income in the most recent quarter, the annualized preferred dividend would be ≈ 1.6 % of quarterly earnings – a very modest share.
If operating cash flow for the quarter was $800 million, the dividend would be ≈ 2 % of cash flow – again a small proportion.Check capital‑adequacy impact
Preferred dividends are not a capital charge* (they are a cash outflow), but if the bank’s CET1 ratio is already near the regulatory minimum, any large cash outflow could erode the capital buffer indirectly (e.g., by reducing retained earnings).
If CET1 is 14 % and the dividend reduces retained earnings by $15 million, the ratio would fall by only a few basis points – negligible. If CET1 were 9 %, the same outflow would be more material.
4. What the news tells us (and what it does not)
| Information from the release | Missing data needed for sustainability analysis |
|---|---|
| Dividend amount: $0.1328 per share, payable Sept 2 2025. | Number of shares outstanding (to size the cash outlay). |
| Preferred‑stock class: 6.375 % non‑cumulative, Series A, 2003. | Recent earnings (quarterly net income, adjusted net income). |
| Payment date and record‑date. | Operating cash flow (quarterly and annual). |
| No mention of any change in capital ratios. | Capital‑adequacy ratios (CET1, Tier 1, leverage, LCR). |
| No statement about dividend policy (e.g., target payout). | Historical dividend coverage (has the bank missed preferred payments before?). |
Bottom line: The press release alone does not provide enough information to definitively answer whether the cash dividend is sustainable. You will need to retrieve the bank’s latest financial statements (SEC filings, earnings releases, or the “Investor Relations” section of Popular’s website) to obtain the missing figures.
5. Practical next steps for you
Locate the most recent 10‑Q or 10‑K (or the “Quarterly Results” press release) for Popular, Inc. – these documents contain:
- Net income, adjusted net income, and earnings per share.
- Cash‑flow statement (operating cash flow, free cash flow).
- Balance sheet with capital‑adequacy ratios (CET1, Tier 1, leverage, LCR).
- Net income, adjusted net income, and earnings per share.
Identify the outstanding preferred‑stock balance – the footnotes in the 10‑K usually disclose the number of preferred shares and any related dividend obligations.
Run the calculations outlined in Section 3 to compute:
- Dividend‑to‑Earnings ratio (annual dividend ÷ annual net income).
- Dividend‑to‑Cash‑Flow ratio (annual dividend ÷ operating cash flow).
- Impact on CET1 (dividend ÷ total CET1 capital).
- Dividend‑to‑Earnings ratio (annual dividend ÷ annual net income).
Compare the ratios to the benchmarks in the table above. If all ratios are comfortably within the “safe” zones, you can conclude that the dividend is likely sustainable under current conditions.
Consider any forward‑looking statements in the Management Discussion & Analysis (MD&A) section – e.g., expectations of earnings growth, credit‑loss trends, or regulatory capital plans that could affect future sustainability.
6. Sample “quick‑look” assessment (illustrative)
| Assumption (illustrative) | Figure | Interpretation |
|---|---|---|
| Preferred shares outstanding | 12 million | Monthly dividend outlay ≈ $1.6 million (≈ $19.2 million/yr). |
| Quarterly net income | $1.05 billion | Annualized ≈ $4.2 billion → dividend ≈ 0.5 % of net income. |
| Quarterly operating cash flow | $850 million | Annualized ≈ $3.4 billion → dividend ≈ 0.6 % of cash flow. |
| CET1 ratio | 13.8 % (well above 8 % floor) | $19 million dividend would reduce CET1 by ~0.04 bps – negligible. |
| Leverage ratio | 5.2 % | Still comfortably above the 5 % minimum. |
With these illustrative numbers, the dividend would be *highly sustainable*: the payout is tiny relative to earnings and cash flow, and the capital buffer is ample.
7. Caveats & risk factors
| Potential downside | Why it matters |
|---|---|
| Earnings volatility (e.g., higher loan‑loss provisions, net‑interest‑margin compression) | Could raise the payout ratio in a future quarter, making the dividend a larger share of earnings. |
| Regulatory capital stress (e.g., a downgrade in CET1 due to asset‑quality concerns) | Even a modest cash outflow could become material if the capital buffer is thin. |
| Liquidity strain (e.g., large outflows of deposits, higher funding costs) | May reduce operating cash flow, tightening the ability to meet the cash dividend without borrowing. |
| Dividend‑policy change (e.g., the board decides to suspend preferred dividends to preserve capital) | Preferred shareholders are still entitled unless the dividend is declared “non‑cumulative.” A suspension could be a red flag about underlying financial health. |
8. Bottom‑line answer (given the data you have)
Based solely on the news release, we cannot determine the sustainability of Popular, Inc.’s cash dividend. The release provides the dividend amount and timing but omits the critical financial context—earnings, cash‑flow generation, and capital‑adequacy ratios—that analysts use to assess whether a bank can comfortably meet its preferred‑stock dividend obligations over time.
To reach a definitive conclusion, you will need to:
- Obtain Popular’s latest earnings and balance‑sheet data (net income, operating cash flow, CET1/Tier 1 ratios, leverage, LCR).
- Calculate the dividend’s size relative to those figures using the framework above.
- Compare the resulting ratios to industry‑standard benchmarks and consider any forward‑looking commentary from management.
If, after those steps, the dividend represents a modest share of earnings and cash flow and leaves capital ratios comfortably above regulatory minima, you can reasonably assert that the dividend is sustainable under current conditions. Conversely, if the payout consumes a large portion of earnings, erodes capital buffers, or the bank’s liquidity metrics are weak, the dividend may be at risk of being reduced or suspended in the near future.