First United Corporation (NASDAQ:FUNC) has announced that it will be increasing its periodic dividend on the 1st of February to $0.18, which will be 20% higher than last year's comparable payment amount of $0.15. This makes the dividend yield about the same as the industry average at 3.0%.
First United's Earnings Will Easily Cover The Distributions
We aren't too impressed by dividend yields unless they can be sustained over time.
Having paid out dividends for 5 years, First United has a good history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, First United's latest earnings report puts its payout ratio at 16%, showing that the company can pay out its dividends comfortably.
If the trend of the last few years continues, EPS will grow by 32.8% over the next 12 months. If the dividend continues on this path, the future payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.
First United Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2017, the dividend has gone from $0.36 total annually to $0.60. This means that it has been growing its distributions at 11% per annum over that time. First United has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. First United has seen EPS rising for the last five years, at 33% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
First United Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for First United that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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