First United (NASDAQ:FUNC) Is Increasing Its Dividend To $0.20

The board of First United Corporation (NASDAQ:FUNC) has announced that it will be paying its dividend of $0.20 on the 1st of May, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 3.7%, which is fairly typical for the industry.

Check out our latest analysis for First United

First United's Payment Expected To Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.

First United has established itself as a dividend paying company, given its 5-year history of distributing earnings to shareholders. While past data isn't a guarantee for the future, First United's latest earnings report puts its payout ratio at 16%, showing that the company can pay out its dividends comfortably.

Over the next year, EPS could expand by 45.1% if recent trends continue. If the dividend continues on this path, the future payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

First United Is Still Building Its Track Record

It is great to see that First United has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the dividend has gone from $0.36 total annually to $0.72. This means that it has been growing its distributions at 15% 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that First United has grown earnings per share at 45% 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

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for First United that investors should take into consideration. 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.