First United Corporation (NASDAQ:FUNC) will pay a dividend of $0.15 on the 1st of August. This means the dividend yield will be fairly typical at 3.4%.
First United's Dividend Forecasted To Be Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.
First United has a short history of paying out dividends, with its current track record at only 4 years. 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.
The next year is set to see EPS grow by 2.4%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 22% by next year, which is in a pretty sustainable range.
First United Is Still Building Its Track Record
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. The annual payment during the last 4 years was $0.36 in 2018, and the most recent fiscal year payment was $0.60. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. 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
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. First United has seen EPS rising for the last five years, at 31% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
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. 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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for First United that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.