First US Bancshares (NASDAQ:FUSB) Is Paying Out A Larger Dividend Than Last Year

First US Bancshares, Inc.'s (NASDAQ:FUSB) dividend will be increasing from last year's payment of the same period to $0.05 on 3rd of January. Despite this raise, the dividend yield of 2.4% is only a modest boost to shareholder returns.

Our analysis indicates that FUSB is potentially undervalued!

First US Bancshares' Earnings Will Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

First US Bancshares has established itself as a dividend paying company, given its 8-year history of distributing earnings to shareholders. Using data from its latest earnings report, First US Bancshares' payout ratio sits at 12%, 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 37.9% over the next 12 months. If the dividend continues on this path, the future payout ratio could be 10% by next year, which we think can be pretty sustainable going forward.

First US Bancshares Is Still Building Its Track Record

It is great to see that First US Bancshares 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. The dividend has gone from an annual total of $0.04 in 2014 to the most recent total annual payment of $0.20. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. First US Bancshares 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. We are encouraged to see that First US Bancshares has grown earnings per share at 38% 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 US Bancshares' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for First US Bancshares 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.