Why Dividend Growth Stocks Like BPOP and CPF Are the Safest Bet for Long-Term Wealth

Investors in today's volatile markets are increasingly seeking reliable income streams that withstand economic headwinds. While high-yield dividend stocks may seem appealing, their allure often masks unsustainable payout ratios and stagnant growth. Instead, the true champions of long-term portfolio resilience are dividend growth stocks—companies like Popular, Inc. (BPOP) and Central Pacific Financial (CPF)—which prioritize consistent dividend increases, low payout ratios, and robust capital management. Let's dissect why these two regional banking giants are top picks for investors aiming to compound wealth through dividends and capital appreciation.

The Case for Dividend Growth Over High-Yield

High-yield dividend stocks often trade at elevated valuations, relying on payouts that may be unsustainable if earnings falter. In contrast, dividend growth stocks focus on sustainable increases in payouts, powered by strong earnings growth and conservative payout ratios. This approach creates a compounding effect: a stock yielding 3% but growing its dividend by 10% annually can outpace a 5% yielder with stagnant growth over time.

The S&P Dow Jones Indices Q1 2025 Report underscores this trend: U.S. common dividends increased by $19.5 billion in Q1, up 37% from Q4 2024, driven by companies prioritizing growth over short-term yield. BPOP and CPF exemplify this shift, with BPOP's dividend growing at a 12.82% annualized rate over the past year and CPF's payout ratio at just 41.5%—both hallmarks of disciplined capital allocation.

Popular, Inc. (BPOP): A Dividend Growth Champion

BPOP, Puerto Rico's largest bank, has increased dividends for seven consecutive years, a streak that reflects its financial stability amid macro challenges. Key metrics:
- Dividend Growth Rates:
- 12-month: 12.82%
- 3-year: 11.59%
- 5-year: 15.22%
- Net Interest Margin (NIM): Expanded to 3.28% in Q1 2025, up from 3.15% a year earlier, signaling resilience to rising interest rates.
- Capital Strength: Common equity tier 1 (CET1) ratio of 10.8%, comfortably above regulatory minimums.

While BPOP's payout ratio remains undisclosed in recent filings, its ability to grow dividends steadily suggests a conservative payout, with earnings growth outpacing distributions. This is critical in an environment where banks face pressure from higher deposit costs.

Central Pacific Financial (CPF): Low Payout, High Growth

CPF, Hawaii's largest bank, combines a 41.5% payout ratio with dividend growth of 3.8% annually since 2023. Its Q1 2025 earnings beat estimates, with EPS of $0.65 and revenue of $68.8 million, driven by loan growth and fee income. Key takeaways:
- Payout Ratio: 41.5% in Q1 2025, down from 50% in prior years, signaling room for future increases.
- Capital Buffer: CET1 ratio of 12.4%, one of the strongest in its sector.
- Zacks Rank: #3 (Hold), reflecting neutral near-term expectations but supported by its four consecutive earnings beats.

Despite operating in the Banks—West sector, ranked in the bottom 43% of Zacks industries due to sector-wide challenges, CPF's outperformance underscores its ability to navigate headwinds.

Navigating Risks: Interest Rates and Sector Challenges

Both BPOP and CPF operate in an environment where rising interest rates could pressure net interest margins. However, their low payout ratios and strong capital positions mitigate risks:
- BPOP's NIM growth suggests it's capturing upside from rate hikes.
- CPF's conservative payout ensures earnings retention for capital buffers and future dividend hikes.

The Zacks Rank #3 for CPF and BPOP's consistent dividend track record further validate their stability. Even in a weaker sector, their fundamentals outpace peers, making them defensive plays in a volatile market.

Final Call: Buy BPOP and CPF for Sustainable Income

Investors seeking to avoid the traps of high-yield traps should prioritize dividend growth stocks like BPOP and CPF. Their low payout ratios, proven dividend growth streaks, and robust capital metrics position them to thrive through economic cycles.

Action Items:
1. Buy BPOP: For its 12.82% dividend growth and Puerto Rico's economic rebound.
2. Add CPF: For its 41.5% payout ratio and Hawaii's tourism-driven recovery.

In a market where yield chasers often overpay for fleeting dividends, growth-focused investors will find safer, compounding returns in BPOP and CPF. These stocks aren't just defensive—they're engines of long-term wealth.

This analysis is for informational purposes only. Always conduct your own research or consult a financial advisor before making investment decisions.