This bank stock just raised its dividend for the 13th straight year

Key points

• US Bancorp just raised its dividend to 50 cents per share.

• It has one of the highest dividend yields in the banking industry.

• Is US Bancorp stock a buy?

It could be argued that this stock has the best dividend among large banks.

US Bancorp (NYSE: USB), the nation’s fifth largest bank, has one of the best dividends in the banking industry and it just got a little better.

Last week, U.S. Bancorp., the holding company for U.S. Bank, boosted its quarterly dividend by 2% to 50 cents per share. For the full year, U.S. Bancorp pays out $2.00 per share. This marks the 13th consecutive year that the bank has raised its dividend payout.

In addition, the bank launched a $5 billion share repurchase program that will begin in 2025.

Best dividend among big banks

The dividend increase gives U.S. Bancorp one of the best dividends in the banking industry, with a yield of 4.48%. That is higher than the 3.21% average dividend yield in the banking industry, according to Seeking Alpha.

Among the 12 largest U.S. banks, only Truist Financial (NYSE: TFC) at 4.94% and TD Bank (NYSE: TD) at 4.70% have higher yields.

However, U.S. Bancorp, at 13 years, has a longer streak of raising its annual payout, so it could be argued that its stability and consistency, along with its high yield, make it the best large bank dividend stock.

One concern about U.S. Bancorp’s dividend is its payout ratio, which sits at 61.9%. That means that the company pays out nearly 62% of its quarterly earnings to fund the dividend. That is higher than the average banking industry payout ratio of 41%.

Typically, a payout ratio over 60% is considered on the high side, because it could mean that the company is paying out too much of its earnings, at the expense of other investments, to its dividend. It also could mean that the company may not be able to keep raising its dividend if the payout ratio gets too high.

U.S. Bancorp’s 61.9% is not too bad, and nothing to be too worried about, but it bears watching.

Is US Bancorp stock a buy?

In addition to the dividend increase, U.S. Bancorp announced plans to buy back $5 billion of the company’s outstanding common stock.

Typically, when companies buy back stock, it increases the value of existing shares and has the effect of raising the stock price.

U.S. Bancorp stock has struggled this year, up just 1.7% in this high-interest-rate environment, which has raised the costs of deposits and eaten into its interest income. With rates expected to move lower, the bank should be better positioned to increase earnings.

The stock currently has a median price target of $49 per share, which represents about 10% growth over its current price.

But the real value of U.S. Bancorp stock is its dividend. If you are an income investor looking for a solid dividend payout, this stock would be a decent choice.

Otherwise, if you are looking for a good dividend and capital appreciation, you’ll find better options elsewhere.