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

Secure Trust Bank PLC (LON:STB) is reducing its dividend to UK£0.41 on the 19th of May. However, the dividend yield of 4.9% still remains in a typical range for the industry.

Check out our latest analysis for Secure Trust Bank

Secure Trust Bank's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Secure Trust Bank is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to fall by 24.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 30%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from UK£0.042 to UK£0.61. This means that it has been growing its distributions at 31% per annum over that time. Secure Trust Bank has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Secure Trust Bank has been growing its earnings per share at 26% a 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.

Our Thoughts On Secure Trust Bank's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Secure Trust Bank is earning enough to cover the payments, the cash flows are lacking. We don't think Secure Trust Bank is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 2 warning signs for Secure Trust Bank (of which 1 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.