Readers hoping to buy South State Corporation (NASDAQ:SSB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 13th of August in order to receive the dividend, which the company will pay on the 21st of August.
South State’s next dividend payment will be US$0.47 per share, on the back of last year when the company paid a total of US$1.88 to shareholders. Last year’s total dividend payments show that South State has a trailing yield of 3.4% on the current share price of $55.34. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. South State distributed an unsustainably high 166% of its profit as dividends to shareholders last year. Without extenuating circumstances, we’d consider the dividend at risk of a cut.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
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 South State’s 19% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, South State has increased its dividend at approximately 11% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. South State is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.
The Bottom Line
Is South State worth buying for its dividend? Earnings per share are in decline and South State is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It’s not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. South State doesn’t appear to have a lot going for it, and we’re not inclined to take a risk on owning it for the dividend.
With that in mind though, if the poor dividend characteristics of South State don’t faze you, it’s worth being mindful of the risks involved with this business. For example, South State has 4 warning signs (and 1 which is potentially serious) we think you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. 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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