Stock Analysis

Three Things You Should Check Before Buying Signature Bank (NASDAQ:SBNY) For Its Dividend

  •  Updated
NasdaqGS:SBNY
Source: Shutterstock

Could Signature Bank (NASDAQ:SBNY) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

Some readers mightn't know much about Signature Bank's 1.0% dividend, as it has only been paying distributions for the last three years. 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 equivalent to around 1.2% of market capitalisation this year. That said, the recent jump in the share price will make Signature Bank's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding Signature Bank for its dividend, and we'll focus on the most important aspects below.

Click the interactive chart for our full dividend analysis

historic-dividend
NasdaqGS:SBNY Historic Dividend February 26th 2021

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Signature Bank paid out 22% of its profit as dividends, over the trailing twelve month period. 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 dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. Its most recent annual dividend was US$2.2 per share, effectively flat on its first payment three years ago.

Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Signature Bank has grown its earnings per share at 6.4% per annum over the past five years. A low payout ratio and strong historical earnings growth suggests Signature Bank has been effectively reinvesting in its business. We think this generally bodes well for its dividend prospects.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Signature Bank has a low and conservative payout ratio. Unfortunately, earnings growth has also been mediocre, and we think it has not been paying dividends long enough to demonstrate resilience across economic cycles. In summary, we're unenthused by Signature Bank as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Signature Bank that investors should know about before committing capital to this stock.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

If you’re looking to trade Signature Bank, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


What are the risks and opportunities for Signature Bank?

Signature Bank provides commercial banking products and services.

View Full Analysis

Rewards

  • Trading at 35.3% below our estimate of its fair value

  • Earnings grew by 47.9% over the past year

Risks

  • Earnings are forecast to decline by an average of 13.1% per year for the next 3 years

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report