Secure Trust Bank's (LON:STB) Dividend Is Being Reduced To UK£0.41

Secure Trust Bank PLC's (LON:STB) dividend is being reduced to UK£0.41 on the 19th of May. Despite the cut, the dividend yield of 4.8% will still be comparable to other companies in the industry.

View our latest analysis for Secure Trust Bank

Secure Trust Bank's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Secure Trust Bank's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to fall by 17.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 28%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was UK£0.042, compared to the most recent full-year payment of UK£0.61. This means that it has been growing its distributions at 31% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Secure Trust Bank has impressed us by growing EPS at 26% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Secure Trust Bank's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Secure Trust Bank is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Secure Trust Bank (1 is a bit unpleasant!) 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.