Stock Analysis

Should Signature Bank (NASDAQ:SBNY) Be Part Of Your Dividend Portfolio?

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NasdaqGS:SBNY
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Dividend paying stocks like Signature Bank (NASDAQ:SBNY) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With only a two-year payment history, and a 2.1% yield, investors probably think Signature Bank is not much of a dividend stock. A low dividend might not be a bad thing, if the company is reinvesting heavily and growing its sales and profits. The company also bought back stock during the year, equivalent to approximately 2.7% of the company's market capitalisation at the time. Some simple analysis can reduce the risk of holding Signature Bank for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Signature Bank!

historic-dividend
NasdaqGS:SBNY Historic Dividend November 20th 2020

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 23% of Signature Bank's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

We update our data on Signature Bank every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The company has been paying a stable dividend for a few years now, but we'd like to see more evidence of consistency over a longer period. Its most recent annual dividend was US$2.2 per share, effectively flat on its first payment two years ago.

It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Signature Bank has grown its earnings per share at 9.6% per annum over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Signature Bank's prospects of growing its dividend payments in the future.

Conclusion

To summarise, shareholders should always check that Signature Bank's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Signature Bank has a low and conservative payout ratio. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. Overall we think Signature Bank is an interesting dividend stock, although it could be better.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 2 warning signs for Signature Bank that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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