First United Corporation's (NASDAQ:FUNC) investors are due to receive a payment of US$0.15 per share on 2nd of May. This means that the annual payment will be 2.6% of the current stock price, which is in line with the average for the industry.
First United's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, First United was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 11.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.
First United Doesn't Have A Long Payment History
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2018, the first annual payment was US$0.36, compared to the most recent full-year payment of US$0.60. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. First United has seen EPS rising for the last five years, at 29% per annum. 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.
First United Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for First United that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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