Secure Trust Bank (LON:STB) Will Pay A Smaller Dividend Than Last Year

Secure Trust Bank PLC (LON:STB) has announced that on 25th of May, it will be paying a dividend of£0.291, which a reduction from last year's comparable dividend. The yield is still above the industry average at 6.7%.

Check out our latest analysis for Secure Trust Bank

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

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Secure Trust Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 28%, which means that Secure Trust Bank would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, EPS is forecast to rise by 28.1% over the next 3 years. Analysts estimate the future payout ratio will be 25% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from £0.28 total annually to £0.451. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

We Could See Secure Trust Bank's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Secure Trust Bank has been growing its earnings per share at 8.0% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Secure Trust Bank Looks Like A Great Dividend Stock

Overall, we think that Secure Trust Bank could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Secure Trust Bank you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.