Popular, Inc.'s Dividend Hike and Strategic Capital Actions: A Compelling Case for Income Investors

In the ever-evolving landscape of income investing, banks with disciplined capital management and a track record of dividend growth often stand out. Popular, Inc. (NASDAQ: BPOP) has recently reinforced its appeal to income-focused investors with a 7% dividend increase to $0.75 per share and a $500 million share repurchase program. These moves, coupled with robust earnings and a strategic focus on capital efficiency, position the company as a compelling case for those seeking sustainable dividend growth and long-term value.

Financial Performance: A Foundation for Confidence

Popular's Q2 2025 earnings report underscored its financial strength. The company reported net income of $210.4 million, with earnings per share (EPS) rising to $3.09—a $0.53 increase from Q1. This performance was driven by a 13.3% return on tangible common equity (ROCE), fueled by higher net interest income, an expanding net interest margin, and strong loan and deposit growth. Loan growth totaled $931 million, including $265 million retained from a toll road financing transaction, while deposit balances surged by $1.4 billion.

The company's capital position is equally impressive. A Common Equity Tier 1 (CET1) ratio of 15.91% provides a buffer for continued growth and capital returns, well above regulatory minimums. This financial fortitude allows Popular to pursue aggressive shareholder returns without compromising stability.

Dividend History and Safety: A Track Record of Growth

Popular has increased its dividend for seven consecutive years, with an annualized growth rate of 14.21% over the past five years. The current payout ratio of 26.21%—significantly below the 60% threshold often cited as a warning sign—demonstrates the company's ability to retain earnings for reinvestment while rewarding shareholders. This low payout ratio, combined with a 2.52% dividend yield, suggests the dividend is both safe and scalable.

The recent hike to $0.75 per share, to be paid on October 1, 2025, reflects management's confidence in maintaining this trajectory. With a history of consistent increases and a payout ratio that leaves room for growth, Popular's dividend appears well-anchored.

Strategic Capital Allocation: Balancing Returns and Resilience

Popular's capital return strategy extends beyond dividends. The new $500 million repurchase program, added to the remaining $33 million from its 2024 authorization, signals a commitment to enhancing shareholder value. During Q2 2025, the company repurchased $112 million in shares at an average price of $99, leveraging its strong capital position to reduce shares outstanding and boost earnings per share.

This approach aligns with the company's long-term goal of achieving a 14% ROCE, with a 2025 target of at least 12%. Initiatives such as digital transformation, branch optimization, and expansion into high-growth sectors like healthcare and construction are expected to drive efficiency and profitability. Popular's focus on Puerto Rico's economic recovery—bolstered by federal reconstruction funds and onshoring opportunities—further strengthens its growth prospects.

Risks and Mitigants: Navigating a Dynamic Environment

While Popular's fundamentals are strong, risks remain. Puerto Rico's economic recovery, though progressing, is still vulnerable to political delays and external shocks. Additionally, rising competition from fintechs and digital banks could pressure net interest margins. However, Popular's disciplined credit management—evidenced by net charge-offs of 45 basis points annualized—and its focus on high-quality lending mitigate these risks.

The Federal Reserve's pause on rate hikes in 2025 provides near-term stability, though potential cuts in 2026 could impact net interest margins. Popular's management has acknowledged this risk but remains optimistic, citing its ability to adjust deposit pricing and leverage its strong balance sheet to maintain profitability.

Investment Thesis: A Win-Win for Income and Growth

For income investors, Popular offers a rare combination of a growing dividend and a compelling yield. The company's 2.52% yield, while modest compared to high-yield alternatives, is supported by a low payout ratio and a history of consistent increases. Meanwhile, the share repurchase program enhances earnings power, creating a flywheel effect that benefits both dividend growth and stock price appreciation.

Conclusion: A Strategic Buy for Patient Investors

Popular, Inc. stands out as a well-managed regional bank with a clear strategy for balancing capital returns and long-term growth. Its recent dividend hike and aggressive buybacks are underpinned by strong earnings, a robust capital position, and a disciplined approach to risk. While challenges remain, the company's strategic initiatives and favorable economic tailwinds in Puerto Rico position it to deliver sustainable returns for income investors. For those seeking a dividend growth story with a strong foundation, Popular is a name worth watching—and potentially adding to a diversified portfolio.