Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see United Community Banks, Inc. (NASDAQ:UCBI) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 12th of September will not receive this dividend, which will be paid on the 5th of October.
United Community Banks’s upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.68 per share to shareholders. Looking at the last 12 months of distributions, United Community Banks has a trailing yield of approximately 2.6% on its current stock price of $26.25. If you buy this business for its dividend, you should have an idea of whether United Community Banks’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. United Community Banks paid out a comfortable 29% of its profit last year.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re discomforted by United Community Banks’s 13% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. United Community Banks has delivered an average of 41% per year annual increase in its dividend, based on the past five years of dividend payments.
Is United Community Banks worth buying for its dividend? United Community Banks’s earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. We’re unconvinced on the company’s merits, and think there might be better opportunities out there.
Ever wonder what the future holds for United Community Banks? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.