Secure Trust Bank (LON:STB) Is Paying Out A Larger Dividend Than Last Year

Secure Trust Bank PLC (LON:STB) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to £0.225. This makes the dividend yield about the same as the industry average at 5.8%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Secure Trust Bank's stock price has increased by 63% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Secure Trust Bank

Secure Trust Bank's Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

Secure Trust Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Secure Trust Bank's payout ratio of 33% is a good sign as this means that earnings decently cover dividends.

According to analysts, EPS should be several times higher in the next 3 years. In addtion, they also estimate the future payout ratio could reach 11% in the same time period, which we would be comfortable to see continuing.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was £0.62, compared to the most recent full-year payment of £0.338. Doing the maths, this is a decline of about 5.9% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's not great to see that Secure Trust Bank's earnings per share has fallen at approximately 9.3% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Secure Trust Bank's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Secure Trust Bank is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Secure Trust Bank (1 is significant!) that you should be aware of before investing. Is Secure Trust Bank not quite the opportunity you were looking for? Why not check out our selection of top 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.