The board of First United Corporation (NASDAQ:FUNC) has announced that it will pay a dividend of $0.15 per share on the 1st of November. Based on this payment, the dividend yield will be 3.6%, which is fairly typical for the industry.
First United's Payment Expected To Have Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.
Having paid out dividends for only 4 years, First United does not have much of a history being a dividend paying company. Based on its last earnings report however, the payout ratio is at a comfortable 17%, meaning that First United may be able to sustain this dividend for future years if it continues on this earnings trend.
Looking forward, earnings per share could rise by 29.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the future payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.
First United Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2018, the dividend has gone from $0.36 total annually to $0.60. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. First United has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. First United has impressed us by growing EPS at 29% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
We Really Like First United's Dividend
Overall, we like to see the dividend staying consistent, and we think First United might even raise payments in the future. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. 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. As an example, we've identified 1 warning sign for First United that you should be aware of before investing. Is First United not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
What are the risks and opportunities for First United?
Trading at 40.2% below our estimate of its fair value
Earnings grew by 52.8% over the past year
No risks detected for FUNC from our risks checks.
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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.