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 the dividend yield will be fairly typical at 2.6%.
First United'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. However, prior to this announcement, First United's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 12.0% over the next year. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.
First United Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The first annual payment during the last 4 years was US$0.36 in 2018, and the most recent fiscal year payment was US$0.60. This means that it has been growing its distributions at 14% per annum 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
Investors could be attracted to the stock based on the quality of its payment history. First United has impressed us by growing EPS at 29% 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.
We Really Like First United's Dividend
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. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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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