Secure Trust Bank's (LON:STB) Dividend Is Being Reduced To £0.16

Secure Trust Bank PLC (LON:STB) is reducing its dividend to £0.16 on the 26th of Septemberwhich is 20% less than last year's comparable payment of £0.20. Despite the cut, the dividend yield of 5.4% will still be comparable to other companies in the industry.

See our latest analysis for Secure Trust Bank

Secure Trust Bank's Payment Expected To Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

Having distributed dividends for at least 10 years, Secure Trust Bank has a long history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, Secure Trust Bank's latest earnings report puts its payout ratio at 23%, showing that the company can pay out its dividends comfortably.

The next 3 years are set to see EPS grow by 55.1%. 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

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.042 in 2012, and the most recent fiscal year payment was £0.611. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Secure Trust Bank has impressed us by growing EPS at 20% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Secure Trust Bank's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Secure Trust Bank has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend 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 unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.