Washington Trust Bancorp's Dividend Sustainability Under Siege: What Investors Need to Know

Washington Trust Bancorp (NASDAQ:WASH), a regional bank with a $0.56 quarterly dividend, has long been a favorite among income investors. However, recent earnings trends and payout ratios are raising red flags about the sustainability of this dividend. Let's dissect the numbers to determine whether WASH's dividend policy is a strength—or a ticking time bomb.

The Dividend: A High Yield with Hidden Risks

WASH's $0.56 quarterly dividend translates to an annual payout of $2.24 per share, yielding ~8.2% as of June 2025. This is compelling for income seekers, but the sustainability of this dividend hinges on earnings.

Earnings Trends: A Steep Decline

Let's start with the most recent results:

• Q1 2025: Net income of $12.2 million ($0.63 diluted EPS), but adjusted EPS (excluding one-time items) was $0.61.
• Q4 2024: A reported net loss of $60.8 million, but adjusted EPS was $0.59, down from $0.64 in Q3 2024.
• Full-Year 2024: Adjusted EPS fell to $2.37, down from $2.63 in 2023.

The critical issue? Trailing Twelve-Month (TTM) EPS turned negative in early 2025, dropping to -0.60, according to recent data. This abrupt shift—from a positive $2.37 TTM in late 2024 to a loss—highlights volatile profitability, likely driven by strategic balance sheet repositioning (e.g., selling assets) and rising expenses.

Payout Ratio: A Red Flag at 100%

The dividend payout ratio—dividends divided by earnings—reveals the strain:

• Q4 2024: 95% (using adjusted EPS of $0.59).
• Q1 2025: ~92% (using adjusted EPS of $0.61).
• TTM (June 2025): 100% (dividends of $2.24 vs. negative TTM EPS of -$0.60).

A payout ratio exceeding 100% means dividends now exceed earnings, a critical warning sign. Historically, WASH's payout ratio has averaged ~72% over three years. Today's 100% ratio places it in the worst 10% of banks by this metric, compared to an industry median of 35%.

Why This Matters

High payout ratios are unsustainable unless earnings rebound. WASH's capital ratios (e.g., 13.13% total risk-based capital as of Q1 2025) remain above regulatory “well-capitalized” thresholds, but capital can only absorb losses for so long. If earnings stay negative, the dividend—now a core part of WASH's investor appeal—could be cut or suspended, triggering a sell-off.

Investment Considerations

Pros of WASH's Dividend

• High yield: 8.2% is attractive in a low-yield environment.
• Consistency: The $0.56 dividend has been maintained through recent volatility.

Risks to Avoid

• Earnings instability: A TTM EPS of -0.60 suggests underlying business struggles.
• Payout ratio at 100%: Dividends are no longer covered by earnings.
• Industry comparison: Competitors like M&T Bank (MTB) and Huntington Bancshares (HBAN) have payout ratios of 35–47%, leaving WASH far more exposed.

The Bottom Line

WASH's dividend is a double-edged sword. While it attracts income investors, the math is clear: earnings must recover to sustain payouts. Until then, the stock faces two risks:
1. A dividend cut could send shares plummeting.
2. Negative TTM EPS may deter investors seeking stability.

Actionable Advice

• Hold: If you're already invested, monitor earnings closely. A rebound to positive EPS could stabilize the dividend.
• Avoid new purchases: Until WASH demonstrates consistent earnings growth, the risk-reward favors caution.
• Consider alternatives: Banks with lower payout ratios and stronger earnings, like Fifth Third Bancorp (FITB) or KeyCorp (KEY), offer safer income streams.

Final Take

Washington Trust Bancorp's dividend is a relic of better times. With earnings in freefall and a payout ratio at unsustainable levels, investors should treat WASH as a high-risk bet. Unless management can stabilize profitability—and soon—the $0.56 quarterly dividend may soon be a thing of the past.

Invest with your head, not your heart. For WASH, the numbers say “run,” not “stay.”