Is ING Group's 7% Yield A Trap?

Wall Street analysts have upgraded ING Group ING to a strong buy as the lender revised its income growth target to between 4% and 5% per year until 2027. ING is among the banking stocks with the highest dividend yields in June 2024. But is the lender's 7.05% yield sustainable?

We analyzed ING’s 27-year dividend payment history and its fundamentals to find out. The lender's dividend history is quite inconsistent, with rapid ups and downs over the last decade.

Nonetheless, the stock has generated a total return of 102.80% in 10 years, which means that investors who bought it in June 2014 have already doubled their investment. But this is nothing to be excited about since the benchmark S&P 500 has delivered a total return of 227.43% within the same period.

ING's current dividend yield of 7.05% is more than 2x the industry average of 3.36%. Moreover, its current dividend payout ratio of 45.58% is higher than the industry average of 32.01% but still within the acceptable range.

ING's dividend coverage ratio of 2x is also below the industry average of 2.49x, but it's within healthy limits. The dividend coverage ratio indicates the number of times a company could pay its common shareholders using its net income over a specified fiscal period.

ING has maintained a 13% EPS growth over the last five years and is forecasted to grow at 15.2% per annum in 2025. Its revenues are also expected to grow by 6.4% per annum in the next two years, outperforming the sector’s projected revenue growth rate of 2.2%.

The great fundamentals and a low dividend payout ratio confirm the company’s ability to sustain its dividends. ING is a good income stock, but it may not be the best option for income investors looking for above-market-rate returns.

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