A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Signature Bank (NASDAQ:SBNY) has started paying a dividend to shareholders. It currently trades on a yield of 1.7%. Let’s dig deeper into whether Signature Bank should have a place in your portfolio.
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does Signature Bank fit our criteria?
Signature Bank has a trailing twelve-month payout ratio of 12%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect SBNY’s payout to increase to 22% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.8%. In addition to this, EPS should increase to $11.5. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Signature Bank as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, Signature Bank has a yield of 1.7%, which is on the low-side for Banks stocks.
If you are building an income portfolio, then Signature Bank is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for SBNY’s future growth? Take a look at our free research report of analyst consensus for SBNY’s outlook.
- Valuation: What is SBNY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SBNY is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.