Old National Bancorp (ONB): A Hidden Gem in the Banking Sector’s Dividend Landscape

Old National Bancorp (NASDAQ:ONB) is an underappreciated dividend opportunity in a banking sector where stability and yield are increasingly prized. Despite a current dividend yield of 6.94%—its highest in 13 years—the market has yet to fully recognize the company’s robust financial foundation, disciplined capital management, and strategic growth initiatives. With a payout ratio well below industry averages, ONB is positioned to deliver dividend growth that could outpace peers in the coming years. Here’s why this under-the-radar bank deserves a place in income-focused portfolios.

A 43-Year Dividend Track Record, Now at a Crossroads

Old National Bancorp has paid dividends for 43 consecutive years, a testament to its financial resilience. While its dividend growth over the past five years averaged a modest 1.1% annually, this consistency has been deliberate. The company prioritizes capital preservation, ensuring dividends remain sustainable even during economic cycles. A quarterly dividend of $0.14 per share (annualized $0.56) has been maintained since at least 2024, with no signs of reduction. This stability, coupled with a current payout ratio of 32.3%, leaves ample room for future hikes.

The data will reveal a payout ratio consistently below 35%, far below the 35% median for its peers. This conservative approach ensures dividends are well-covered by earnings, even as ONB pursues growth.

Why the Payout Ratio Matters—and ONB’s Edge

A payout ratio below industry peers (35% median) is a strategic advantage. At 32.3%, ONB retains more earnings for reinvestment in growth initiatives like its pending acquisition of Bremer Bank, which will boost scale and efficiency. This deal, expected to close in May 2025, will add $41 billion in deposits and $36.5 billion in loans to ONB’s balance sheet, amplifying its already strong deposit franchise and loan growth. With an adjusted efficiency ratio of 51.8%, among the best in the sector, ONB is primed to convert scale into higher profits.

The company’s TTM (trailing twelve months) payout ratio of 32.56% further underscores sustainability. Even in Q1 2025, with net income dipping to $140.6 million (from $149.8M in Q4 2024), diluted EPS remained at $0.44, comfortably supporting the dividend. Analysts project future payout ratios as low as 21.1%, signaling ample room for dividend increases without straining profitability.

Earnings Growth: The Fuel for Future Dividends

ONB’s earnings trajectory is a key catalyst. Despite Q1’s slight dip in net income, the company’s adjusted EPS of $0.45 (excluding merger costs) reflects core strength. Deposit growth of 2.1% annualized and loan growth of 1.5% annualized provide a steady revenue base. Meanwhile, credit quality remains resilient, with a net charge-off ratio of 24 bps and nonaccrual loans at 1.29%—both below industry averages.

This data will highlight a consistent EPS range of $1.68–$1.94 over the past three years, underpinning dividend safety. With Bremer’s integration, synergies could lift earnings further, creating a runway for dividend hikes.

Valuation: A High Yield Hiding a Growth Story

At a 6.94% dividend yield—more than double the 3.17% median of its 13-year average—ONB’s shares appear undervalued. While the banking sector’s broader yield is 1.5% (bottom 25% of the U.S. market), ONB’s yield reflects its conservative payout ratio and strong fundamentals. The recent dip in share price creates a buying opportunity: investors can lock in a high yield while positioning for dividend growth as earnings rebound.

This comparison will underscore ONB’s superior yield, even as broader market dividends stagnate.

A Call to Action: Income Investors, Take Note

Old National Bancorp is a rare blend of dividend safety and growth potential. Its 32.3% payout ratio offers a margin of safety, while its acquisition of Bremer and disciplined capital management position it to boost payouts in the coming years. With a yield near decade highs and a track record of resilience, ONB is primed to reward income-focused investors who act now.

The time to capitalize on this underappreciated opportunity is now. As the banking sector stabilizes post-pandemic, ONB’s blend of yield, stability, and growth could make it one of 2025’s top income plays.

Investment thesis: Buy ONB for its high yield, sustainable payout ratio, and strategic growth catalysts. Hold for dividend growth and capital appreciation.