There is a lot to be liked about Washington Trust Bancorp Inc (NASDAQ:WASH) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 3.4%, and has a market cap of US$887m. Should it have a place in your portfolio? Let’s take a look at Washington Trust Bancorp in more detail.

View our latest analysis for Washington Trust Bancorp

5 questions to ask before buying a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is it paying an annual yield above 75% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share risen in the past couple of years?

• Can it afford to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

How does Washington Trust Bancorp fare?

The company currently pays out 49% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect WASH’s payout to fall to 41% of its earnings, which leads to a dividend yield of 3.4%. However, EPS should increase to $4.14, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of WASH it has increased its DPS from $0.84 to $1.72 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.

In terms of its peers, Washington Trust Bancorp generates a yield of 3.4%, which is high for Banks stocks but still below the market’s top dividend payers.

Next Steps:

With this in mind, I definitely rank Washington Trust Bancorp as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three pertinent aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for WASH’s future growth? Take a look at our free research report of analyst consensus for WASH’s outlook.

2. Valuation: What is WASH worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WASH is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.