First United Corporation's (NASDAQ:FUNC) periodic dividend will be increasing on the 1st of February to $0.18, with investors receiving 20% more than last year's $0.15. Based on this payment, the dividend yield for the company will be 3.0%, which is fairly typical for the industry.
First United's Dividend Forecasted To Be Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.
First United has a good history of paying out dividends, with its current track record at 5 years. Using data from its latest earnings report, First United's payout ratio sits at 16%, an extremely comfortable number that shows that it can pay its dividend.
If the trend of the last few years continues, EPS will grow by 32.8% over the next 12 months. 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 Doesn't Have A Long Payment History
First United's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, 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 11% 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
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 33% 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 this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for First United that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
What are the risks and opportunities for First United?
Trading at 39.4% 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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