Popular, Inc.'s Dividend Strategy: A Defensive Play in a Volatile Market?

In an era of economic uncertainty and shifting market dynamics, dividend-paying stocks have become a beacon of stability for income-focused investors. Popular, Inc. (NASDAQ: BPOP), the largest bank in Puerto Rico and a key player in the U.S. regional banking sector, has recently raised its quarterly dividend by 7% to $0.75 per share. This move, coupled with a robust capital return strategy, raises critical questions about its financial health, dividend sustainability, and long-term appeal as a defensive investment.

Dividend Sustainability: A Low Payout Ratio and Strong Earnings

Popular's latest dividend declaration reflects a payout ratio of 26.21% of 2025 earnings, a figure that underscores its disciplined approach to capital distribution. By retaining the majority of its earnings, the company maintains flexibility to reinvest in growth opportunities while ensuring a buffer against economic downturns. This low payout ratio is particularly compelling in a sector where many peers struggle with high leverage and thin margins.

The dividend increase also aligns with Popular's broader capital return strategy. In addition to the dividend hike, the company announced a $500 million share repurchase program in 2025, doubling its existing authorization. Share repurchases reduce the number of outstanding shares, boosting earnings per share (EPS) and enhancing shareholder value. For context, Popular repurchased 1.3 million shares in Q1 2025 alone, signaling confidence in its capital position.

Financial Health: A Capital-Strong, Credit-Resilient Bank

Popular's financial metrics paint a picture of a well-capitalized institution. As of June 30, 2025, its Common Equity Tier 1 (CET1) ratio stood at 15.91%, well above the average for regional banks and a testament to its ability to absorb losses. This strength is further reinforced by its $210.4 million net income in Q2 2025, driven by a 3.49% net interest margin and healthy loan and deposit growth.

The company's credit quality has also improved, with non-performing loans (NPLs) declining by $36.7 million in Q1 2025 and a NPL-to-loans ratio of 0.84%. Popular has proactively increased its allowance for credit losses (ACL) to 2.05% of loans, a prudent buffer against potential downturns. These metrics suggest that Popular is not only navigating current challenges but also positioning itself to weather future storms.

Industry Position: A Regional Powerhouse with Diversified Strength

Popular's dominance in Puerto Rico—where it leads by assets and deposits—is a key competitive advantage. Its retail banking franchise has driven $434 million in deposit growth (excluding public deposits) in Q2 2025, demonstrating its ability to attract and retain customers. In the mainland U.S., Popular Bank operates in high-growth markets like New York, New Jersey, and Florida, offering a diversified revenue base.

The company's strategic focus on technology and customer service further strengthens its position. Investments in digital banking and operational efficiency have enabled Popular to maintain profitability even as interest rates fluctuate. This adaptability is crucial in a sector where net interest margins are under pressure, with the industry average projected to hover near 3% by year-end.

Risks and Mitigants: Navigating a Complex Landscape

No investment is without risk. The banking sector faces headwinds, including rising credit losses in commercial real estate (CRE) and regulatory uncertainty. Popular's exposure to CRE is relatively modest, and its strong capital position provides a cushion. Additionally, the company's proactive ACL adjustments and conservative lending practices mitigate credit risk.

Regulatory changes, such as the Basel III Endgame, could also impact capital requirements. However, Popular's CET1 ratio of 15.91% provides ample room to comply with potential increases without compromising its dividend or repurchase programs.

Investment Implications: A Defensive Play with Growth Potential

For investors seeking defensive stocks, Popular offers a compelling mix of dividend security, capital strength, and industry leadership. Its 7-year dividend growth streak, with an annualized increase of 12.86% over the past 12 months, highlights its commitment to shareholder returns. The recent 7% hike to $0.75 per share, coupled with aggressive share repurchases, further enhances its appeal.

However, investors should monitor macroeconomic trends and credit quality. Popular's low payout ratio and strong CET1 ratio provide a margin of safety, but a severe economic downturn could test its resilience. For now, the company appears well-positioned to sustain its dividend and continue returning value to shareholders.

Conclusion: A Balanced Approach to Income and Growth

Popular, Inc. exemplifies the ideal defensive investment: a company with a strong balance sheet, sustainable dividends, and a clear strategy for capital returns. While the banking sector faces challenges, Popular's proactive risk management and diversified operations make it a standout in a volatile market. For income-focused investors, the 26.21% payout ratio and 7-year growth trajectory offer a compelling case to consider BPOP as part of a diversified portfolio.

In a shifting market, Popular's blend of stability and growth potential makes it a stock worth watching—and potentially owning.